Tue, Jul 7, 2020

E-Payments in Class Action Settlements

Electronic payment, such as direct deposit or digital vendors, is not a new concept for class action settlement administration. In recent years, Courts have suggested attorneys consider electronic payments to increase class member participation. Benefit distribution through electronic payment is an alternative many attorneys are already considering to ensure successful disbursement.

In their November 1, 2018 amendments to procedural guidance, the Northern District of California suggested that counsel “consider direct deposit for payment distribution in class action settlements to potentially make it easier for class members to collect their benefits.”

The amended guidelines specifically mention direct deposit, a form of direct payment, to increase class member participation. But if physical checks are not possible or if your case calls for a hybrid method of distribution in which the class member can choose a payment method, forms of direct payment are options to consider. Counsel should also consider the structure of the settlement, the behavior and demographics of the class, what’s happening in the world, and the timetable in which distribution needs to occur before determining methods of payment.

Electronic payment may reduce administrative costs by avoiding printing and mailing checks, processing undeliverable mail, and reconciling bank accounts. In addition, more and more class members are looking for the option to choose electronic payment for their reward. According to the PYMNTS.com 2019 disbursement satisfaction index, 74% of surveyed consumers want funds that are delivered quickly and are safe to spend. That same survey found 24% of consumers prefer a pre-paid card, while 46.7% prefer their reward via direct deposit.

Using Prepaid Cards

Distributing individual prepaid VISA cards is a worthy alternative to checks for providing benefits to class members. The PYMNTS.com study found an estimated 833,000 consumers would have liked to receive disbursements via debit card, and more than 1.6 million would have preferred them via prepaid card in 2018.

  • Prepaid cards allow benefit access for any unbanked class members.
  • Money is immediately available for class members to spend.
  • Prepaid cards are equivalent to cash, able to be used virtually anywhere.
  • Prepaid cards are traceable once a card is activated.
  • If lost or stolen, funds can easily be frozen and the card can be replaced.

There is a fee to buy each card, which is a cost consideration. But that cost should be weighed against the cost of printing and postage that checks require.

Does Direct Payment Work for Your Class Action Settlement?

Direct payment, commonly referred to as direct deposit, is a payment method that runs on banking networks in the United States. The disbursement satisfaction study found direct deposit was the preferred disbursement method for most consumers, and in 2018 it was the most common method of disbursements for on-demand, merchant and loan disbursements.

While direct deposit offers ease of access for most class members, there are some things to consider before structuring your settlement agreement.

  • Access: Roughly 14.1 million American adults (6%) do not have a bank account. Class members would be required to open a new account and prove creditworthiness if they have not already.
  • Fees: For people who do not have bank accounts, hefty fees apply. Businesses providing check cashing services may charge 1-12% of the total check amount for the convenience.
  • Permanence: Once a payment is sent via direct deposit, it cannot be as easily canceled and re-issued as you can do with a check.
  • Accuracy: Over the course of a year or more, banking information can become outdated, so the length of the claims process should be taken into account. If a claimant does not supply accurate information or the information becomes outdated before disbursement, it costs time and money to rectify the data.


What About PayPal or Venmo?

PayPal and Venmo are popular ways to easily get paid online or on-the-go. While the vast majority of Americans have active PayPal accounts and 40 million people use Venmo, there are still several people who do not use these services. Considering the demographic of your audience is crucial when considering payment via digital third-party companies.

Class members would be required to open a new account if they did not already have one. Also, in some cases, these services charge fees per transaction, which should be considered when structuring the agreement.

Kroll Settlement Administration has successfully administered several class action settlements with electronic payments and has worked with counsel early on in the settlement process to identify the best way, depending on the specific case, to disburse benefits to class members. Our leadership team is available to assist with any questions you may have on current or future class action matters. Please contact us today for a free consultation.

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