On Nov. 14, 2016, the Federal Trade Commission (FTC) announced it issued orders to eight unidentified claims administrators, requiring them to divulge information on class settlement notification procedures and the response rates for various notification methods.[1] Citing its investigative powers for consumer protection matters under Section 6(b) of the FTC Act, the FTC stated that it issued the orders to understand the effectiveness of class action settlement notice programs.

The orders are part of the FTC’s Class Action Fairness Project – a program to “ensure that class action settlements in consumer protection and competition matters provide appropriate benefits to consumers and that class counsel or defendants are not inappropriately benefiting at the expense of class members.”[2] As part of this project, the FTC files amicus briefs or intervenes in class actions; advises state, federal and private groups and seeks suggestions on matters that merit FTC attention; and monitors legislation and class action rule changes.[3] For well over a decade, the FTC has been filing amicus briefs in state[4] and federal[5] class actions opining on issues ranging from excessive attorneys’ fees to the fairness, reasonableness and adequacy of class settlements.

Pursuant to the Class Action Fairness Project, the FTC has initiated two proposed studies: the Notice Study and the Deciding Factors Study. Both studies focus on nationwide class action settlements. The initial comment periods required by the Paperwork Reduction Act have closed for both studies.[6]

The internet-based Notice Study is designed to gauge consumer comprehension of class action notices and the options they provide.[7] This study is designed to analyze whether consumers receiving nationwide class action notices understand the process and implications for opting out of a settlement, the process for participating, and the implications of doing nothing.[8]

The Deciding Factors Study is aimed at examining factors that influence consumers’ decisions to participate, opt out of or object to a class action settlement.[9] Specifically, the stated goal of the study is to assess whether consumers understand the options and the benefits they expect to receive from settlement, or whether the complexity of the settlement process impacts their decision to participate in the settlement.[10] To conduct the study, FTC personnel plan to directly contact consumers who have received nationwide class action notices.[11]

In addition to the FTC, as discussed in our previous posts, federal courts are scrutinizing class action settlements due to perceived fairness concerns. For example, in a September post, we summarized a Sixth Circuit decision vacating a class settlement, finding that sealed documents prevented objectors from assessing the settlement’s fairness. And in a February post, we examined a Northern District of California ruling denying final approval of a settlement, finding that notice to class members was inadequate and that the release of future claims against the defendant was too broad.

The FTC’s Class Action Fairness Project began in 2002 and does not appear to have a target end date. As such, the FTC will continue to operate the Project to ensure that “when consumers have meritorious claims they get meaningful, not illusory, relief.”[12] The FTC “plan[s] to use the study results, along with other information such as public comments, to guide the [] Class Action Fairness Project.”[13] Regardless of the outcome of the Project, it is clear that federal authorities at both the judicial and regulatory level are concerned about the perceived fairness and benefits to individuals from class action settlements.

We will continue to monitor this issue.