Fairness in Class Action Litigation Act Could Spell Trouble for Consumers

It’s no surprise that big businesses don’t like class action lawsuits. The reason is simple: class actions are effective and offer groups of consumers a way to fight corporations on equal footing. One person may never be able to take a company to court over, say, inaccurately labeled cereal, but gather a few hundred together and suddenly consumers have what they need: clout. Class action litigation rests on its legal prerogative to bring together people who suffer similar losses. These losses don’t have to be big, and they don’t have to be identical – they just have to stem from a common grievance.

All that could be about to change.

Are Class Actions “Fair?”

A proposed bill currently being heard in the House of Representatives has garnered criticism over attempts to change the way class action lawsuits work. The bill – the Fairness in Class Action Litigation Act – is supported by Rep. Bob Goodlatte and Rep. Trent Franks, both Republicans who describe the bill as an improvement to the current legal system. How so? A look at the bill’s language shows us the key point:

"No Federal court shall certify any proposed class seeking monetary relief for personal injury or economic loss unless the party seeking to maintain such a class action affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives."

It doesn’t seem like much, but there’s a lot to take issue with. If this bill is successful, class members may have to prove that their injuries are “the same type and scope” as the representative plaintiff’s before they can join the suit.

Why is that bad? Simple: class actions by their nature bring together people with similar, but not identical, injuries. Did one consumer spend $50 on falsely advertised shoes, and another $60? Their monetary losses are not identical, but the source of their grievance is. The current system allows for this discrepancy – but what would the “Fairness in Class Action” bill make of it? Some observers – including the LA Times’ David Lazarus – worry that consumers’ rights are now under attack.

“Many companies already forbid you from joining other disgruntled customers in filing a class-action lawsuit, forcing you instead to take your beef to an arbitrator,” he wrote. “[This bill] would diminish your legal options even more.”

If consumers are only allowed to join suits where their injuries are demonstrably identical to the injuries of the named plaintiff, huge swathes of otherwise qualified consumers would be left out. Apart from the loss of potential settlement funds for the very people injured by the defendant’s actions, the principle here – that class membership should be so narrowly defined – is worrying.

Class Action Critics Have Their Reasons

Class action lawsuits have always had their critics – and it’s important to accept that some of the criticisms are grounded in genuine frustrations. Companies are facing an increasing number of lawsuits, often seen as frivolous, and often resulting in large settlements that divide somewhat unequally between lawyers and consumers.

There have been calls from both the legal profession and consumer rights groups to cap attorneys’ fees and significantly alter the way funds are handled once a case has ended. But some of the loudest critics are those who have the most to lose: big businesses and stockholders whose profits take a hit when consumers stand up for themselves and challenge poor business practices.

Frankly, some criticisms of class actions can be dismissed as sour grapes, and even taken as a sign that class actions are doing exactly what they were designed to do. Companies across the United States have already gone to work undermining consumers’ right to collective actions though the use of arbitration agreements – something we’ve written about before, and something all consumers should be worried about.

The Fairness in Class Action Litigation Act currently has a projected 25% chance that it will pass into law and was sent for consideration to the House of Representatives on June 24, 2015. No date has been set for the House vote.

You can read the entire bill – which only runs to two pages, including its formal introduction – by clicking here.