/>iManaging consumer disputes and consumer lawsuits has always been a fact of life for financial services companies—even those with the most advanced compliance management programs.
Recently, however, a relatively small number of plaintiffs and consumer law firms are responsible for driving an outsized number of disputes and litigation matters. And the increasing prevalence of arbitration provisions that govern consumer products and services are creating opportunities for consumer attorneys to leverage the costs of defending arbitrations against financial services companies, including by filing high-volume or mass arbitration claims on behalf of dozens, hundreds, or even thousands of consumers under a single theory of recovery.
Fortunately, there are several strategies companies can employ to help stay ahead of the litigation and arbitration curve.
Familiar Names Fuel Litigation, Consumer Complaints
If in-house counsel at financial services companies think the names of the litigants and counsel on their new litigation and arbitration matters look familiar, they probably are right. Many complaints and litigation filings are coming from a small pool of the most frequent consumer attorneys and repeat plaintiffs.
Webrecon estimates as many as 40 percent of plaintiffs have sued under consumer statutes before. A December 2023 sample showed that 300 consumers who filed litigation in that month were responsible for filing a collective 2,624 lawsuits since 2001—an average of 8.7 lawsuits per plaintiff.
In addition, plenty of people seemingly want to be attorneys—even if they aren’t. An estimated 10-15 percent of civil litigation cases are filed by pro se plaintiffs. Although these cases may not be a huge part of a company’s litigation portfolio, they can be among the most troublesome and expensive to defend against.
Volumes of complaints filed with Consumer Financial Protection Bureau are down from 2021 peaks, but many of the complaints are filed by consumers and attorneys who bring multiple complaints, often to other venues, like the Better Business Bureau or state regulators and attorneys general.
Volumes of complaints filed with Consumer Financial Protection Bureau are down from 2021 peaks, but many of the complaints are filed by consumers and attorneys who bring multiple complaints.
Such complaints often are a precursor to litigation. Rarely do consumers or their attorneys file litigation without first sending a complaint in some format to the company.
If handled correctly, complaint responses can be a great defense in litigation. Some states, such as Massachusetts, California, and West Virginia, give defendants a chance to correct the issues outlined in complaints and avoid liability. Handling complaints and pre-litigation demands also can be an offensive tool in litigation in some instances.
“Manufactured Claims” Bring Headaches in the Mail
Many of the latest pre-suit claims, arbitration claims, and litigation claims are completely manufactured by consumer law firms and credit repair organizations that work closely with them. These plaintiffs’ law firms send out standardized letters containing a “dispute” and/or “cease and desist” and/or “attorney representation” notices. In many instances, no consumer address or consumer account numbers are identified. Such letters typically:
- Ask for all future communications to go to the law firm;
- Ask the recipient to cease and desist all further forms of communications; and,
- Revoke any prior express consent to be called using an ATDS or with artificial or prerecorded voices.
One plaintiffs’ firm was recently called out for signing their clients’ names on a standardized handwritten letter that includes a lot of irrelevant text along with a sentence buried in the middle of the letter reciting that the consumer does not owe the money that is being reported and/or that is being collected. The attorneys responsible for the letter have testified that the letter was specifically designed to prevent the dispute from being noticed.
The goal of these tactics is to capitalize on gaps or delays in a financial services company’s processes, including situations where dispute letters may be missed altogether, handled incorrectly, or processed too slowly. The dispute letters then are followed by litigation matters or arbitration proceeding asserting claims under the Fair Debt Collection Practices Act (FDCPA) or state-law analogues for failure to cease communications, or claims under the Telephone Consumer Protection Act (TCPA) based on revocation of consent.
Mass Arbitrations— How did we get here?
Mass arbitrations are a litigation approach used by consumer attorneys that are designed to force large settlements by leveraging the cost of the arbitration forum against the defendant.
In a typical mass arbitration, the plaintiffs’ attorneys use social media or other mass marketing methods to gather hundreds—or thousands—of consumer clients, and to then file (or threaten to file) identical arbitration claims against the same defendant at the same time. Generally speaking, the defendants are responsible for paying the administrative fees and fees for the arbitrator in all cases. The invoices from the arbitration forum can easily climb into the hundreds of thousands or even millions of dollars depending on the number of arbitrations that are filed.
Even if the theory of recovery asserted by the claimants is wholly meritless, the consumer attorneys know that the defendant will have to pay huge arbitration fees long before it gets to the first hearing. The defendant’s desire to avoid the costs of paying the arbitration forum creates huge settlement leverage for the plaintiffs.
Corporate defendants have tried many different approaches to attempt to extricate themselves from mass arbitrations, with little success. Unfortunately, it has become clear that companies cannot depend on courts for relief in these situations. For example, in Abernathy v. DoorDash, Inc., the Northern District of California granted the plaintiffs’ motion to compel arbitration filed on behalf of more than 5,000 employees who signed declarations seeking arbitration and who were represented by the same counsel.
Corporate defendants have tried many different approaches to attempt to extricate themselves from mass arbitrations, with little success. Unfortunately, it has become clear that companies cannot depend on courts for relief in these situations.
In reaching its conclusion, the federal court did not care that the defendant was facing millions of dollars in arbitration costs. It noted that for decades, employers have required employees to sign arbitration clauses containing class action waivers: “The employer here, DoorDash, faced with having to actually honor its side of the bargain, now blanches at the cost of the filing fees it agreed to pay in the arbitration clause. No doubt, DoorDash never expected that so many would actually seek arbitration. Instead, in irony upon irony, DoorDash now wishes to resort to a class-wide lawsuit, the very device it denied to the workers, to avoid its duty to arbitrate.”
Although litigating your way out of a mass arbitration may prove difficult, financial services companies can take steps to reduce their risks if they can exercise some control over the term of the arbitration clause. For example, financial services companies should select an arbitration provider who has the best set of procedures for handling mass arbitrations (which may include more favorable fee structures in a mass arbitration setting). Companies should look closely at the notice and cure provisions, mediation, and fee and cost shifting provisions in their agreements, and should work with their counsel to draft clauses that limit the abusive nature of mass arbitrations.
Although litigating your way out of a mass arbitration may prove difficult, financial services companies can take steps to reduce their risks if they can exercise some control over the term of the arbitration clause.
Complaint & Pre-Litigation Demand Best Practices
Understanding your complaint process and identifying where customers can submit complaints is crucial. Plaintiffs may capitalize on gaps in your complaint process, so regular quality control checks can help identify and close these gaps. Focus on individuals or groups that frequently file complaints, keeping track of the most common pro se consumers and attorneys.
It is also essential to conduct an independent review. Avoid relying solely on the original data being disputed and instead independently verifying upstream data and information.
Implementing a cure strategy is critical; utilize statutory cure notices as pre-litigation demands to preempt or mitigate liability. Companies should approach these notices with due seriousness rather than treating them as routine complaint responses.
Finally, anticipate that responses to a complaint will be used as exhibits in litigation and prepare them accordingly.
