WASHINGTON – A recent study finds that litigation involving private rights of action only serve the best interests of the private attorneys, not the consumer.
The study produced by the U.S. Chamber Institute for Legal Reform (ILR) reported that lawyers have used the Telephone Consumer Protection Act (TCPA), for instance, to file high-dollar lawsuits and that 4 percent of eligible consumers file settlement claims, yet plaintiffs' attorneys receive up to 30 percent of the settlement as a portion of their fees.
“Most supposedly injured customers do not make claims or receive settlement money,” said Walter Olson, a senior fellow at the Cato Institute. “Lawyers and a few clients make out well.”
Cato Institute Senior Fellow Walter Olson | Cato Institute
Federal and state privacy statutes or laws that provide private rights of action allow lawyers to sue defendants in place of government entities or regulating bodies.
“So these laws make two moves that are especially dangerous when combined with each other,” Olson said. “They create an automatic entitlement to damages whether or not the consumer can show any injury (statutory damages) and they authorize class actions by which ... in practice, lawyers ... can bring to court large groups of consumers who did not themselves make any choice to sue.”
Olson said statutory damages in these cases are sometimes defended as opportunities for complainants to enforce the law, but suits amplified by transaction volumes or high numbers of consumers can become situations where liabilities are based on technicalities or harmless violations.
“Some danger remains even if a state's attorney or regulatory agency rather than a class action organizer is empowered to collect statutory damages multiplied in this way – handing the power over to a government actor does not eliminate the unfair leverage, even though it may transfer the benefits to the public treasury,” Olson said.
The ILR’s report, titled "Ill-Suited: Private Rights of Action and Privacy Claims," concluded that the state or governing agencies are much more adept at interpreting the complexities of the law and putting enforcement power in their hands offers consumers better remuneration and privacy protections.
“Overall, public regulators are more likely to strike a decent balance because they are more likely to use prosecutorial discretion to refrain from suing in cases where a practice has either not harmed, or has helped, consumers,” Olson said.