With final judicial approval, HSBC Bank set the record for the third-largest settlement in a Telephone Consumer Protection Act class action with a deal just shy of $40 million.

Multiple consumer class actions alleging TCPA violations were filed against the bank in 2014 and were consolidated into a federal court action in Illinois. The plaintiffs claimed that they received nonemergency calls from HSBC on their cell phones “at all hours of the day,” using an artificial or prerecorded voice or an automatic telephone dialing system.

After initial discovery and mediation sessions were held, the parties reached a deal.

HSBC agreed to establish a non-reversionary settlement fund of almost $40 million. After deducting notice and administration costs of $1.2 million and service awards for two class representatives of $5,000 each, as well as an award to class counsel for almost $12 million, the value of the settlement for the class was roughly $26.7 million.

In granting final approval of the deal, U.S. District Court Judge James F. Holderman recognized that if all 9,065,262 class members filed a claim, they would each receive just $2.95. However, only 286,433 class members actually filed a timely claim (just 3.16 percent of the class) resulting in payment of at least $93.22 each.

Settlement checks become void after 180 days. At that time, the settlement agreement provides for two possible payouts, depending on the dollar value of the uncashed checks. If the combined amount exceeds $50,000, a second pro rata distribution to timely claimants will occur. If less than $50,000, the total will be distributed as a cy pres payment to Equal Justice Works.

Concluding that the deal was “fair, reasonable, and adequate,” Judge Holderman evaluated its terms using five factors. Balancing the potential of class members’ recovery through continued litigation with the settlement amount offered, he recognized that $2.92 or $93.22 is significantly less than statutory damages of $500.

But “a settlement need not provide the plaintiffs a total victory, especially where the plaintiffs have suffered no actual damages and total victory would threaten the defendant’s ability to continue on as a viable entity,” the judge wrote, noting that a maximum statutory recovery against HSBC totaled $172 billion (or $516 billion for knowing and willful violations).

In addition, the recovery “is not a trifling sum” in light of the challenges facing the class. HSBC indicated that further litigation would have entailed a defense that the class members consented to be contacted on their cell phones, either by a condition in their cardholder agreements or by providing the number to the bank at some point after opening their credit cards. “’Prior express consent’ under the TCPA is a term of art, the unsettled meaning of which has led to significant—and in this court’s view—excessive—litigation,” Judge Holderman wrote.

HSBC had additional defenses in the case, including an argument that individual discovery would be necessary to determine whether prior express consent had been granted, posing a “serious obstacle” to class certification, that was complicated by the fact that the bank sold its credit card portfolio in 2012 to Capital One Financial Corporation.

Petitions pending before the Federal Communications Commission could also extinguish the class’s claims, the court added.

The agency is currently considering whether to exclude predictive dialers used for non-telemarketing purposes (such as debt collection) from the TCPA’s prohibition. In addition, multiple petitions are pending seeking clarification on how and when consent may be expressed by consumers. “If the FCC were to issue an order clarifying that a customer provides ‘prior express consent’ by providing his or her cell phone number to the caller at any point in time, many or all of the class members would be left without a TCPA claim,” the court said.

“Accordingly, considering HSBC’s potentially meritorious defenses and the legal uncertainty concerning the application of the TCPA, the court concludes that Plaintiffs would probably face an uphill battle proceeding to trial and, once there, obtaining relief,” the judge wrote. “The settlement provides value that is fair considering the very real possibility that Plaintiffs may recover nothing if they were to proceed further with the litigation.” The court considered such factors as “scant opposition” to the settlement, the “likely complexity, length, and expense of continued litigation,” the experience and views of counsel, and the stage of the proceedings and amount of discovery completed.

While Judge Holderman granted his final approval of the deal, he did reduce the requested class counsel fees from $12 million to $9.495 million, based on his calculations for the market rate for TCPA class actions. He relied extensively on another recently approved TCPA settlement in his courtroom, the record-setting $75 million agreement in a case against Capital One Bank.

The reduction in counsel fees was the class’ gain, as the court ordered that the additional money available should go to class members, which increased their share to at least $101.94 each.

To read the opinion and order in Wilkins v. HSBC Bank, click here.

Why it matters: As the number of TCPA suits continues to increase, so do the record-setting settlements. With final approval of both the HSBC action and the Capital One deal, the top three TCPA settlements currently stand at payments of $75.5 million (Capital One), $45 million in a case against a wireless communications provider filed in Montana federal court and approved in early February, and the almost $40 million payment by HSBC.