Considerations in Defending Banking and Financial Class Action Lawsuits and Multi-District Litigation
Important factors in banking and financial class action lawsuits alleging economic damages and credit damages.
It is very difficult to accurately define a specific class of damaged individuals for a typical banking or financial economic damages or credit damages class action lawsuit. This article explores some of the reasons why.
Purported Class Members Often Have Very Diverse Damages Claims
Quite often, the claims of damages made in a banking or financial class action case are diverse and affect different victims in different ways. For example, in one recent class action case I reviewed, the various issues affecting the victims included:
□ Fraudulent Car Loans
□ Bad Checks
□ Fraudulent Interim Loans
□ Fraudulent Funds Transfers
□ Failure to Pay Off Existing Financing
□ Identity Theft, which manifests itself in many forms
Plus, the complexity of the case was compounded by the fact that the victims were affected by different combinations of these problems, requiring an individual analysis for each victim in order to establish a realistic and meaningful estimate of their damages and thereby insure a fair resolution. The factor that victims are affected by different combinations of problems is common among banking and financial class action situations.
Quite often, the monetary economic and credit damages that are sought are not incidental damages which arise from a wrong to the class as a whole, but are unique to each individual class member.
Timing issues on these economic and credit damages matters vary from person to person and can only be addressed accurately and meaningfully on an individual basis.
Damages, if any, sustained by purported class members are discovered at different times after the occurrence of the event that is purported to be the cause of the damages, and this results in differing impact periods on the various purported class members. As a result, the damages would vary for each purported class member based upon the length of time that had elapsed from the occurrence of the causal event to the time it was discovered and then mitigated or corrected by each individual.
In the case of credit damages cases, the Statute of Limitations for a claim under the Fair Credit Reporting Act is two years. One of the central issues to be litigated in a banking or financial class action case is precisely when did each individual’s claim arise and is the claim barred by the Statute of Limitations. This requires the Court to examine each individual’s damages claim and make a determination as to whether the claim is time barred.
Where purported class members each have different damages amounts, different factors causing damages, different timing for the commencement of their damages, as well as other differences (as explained in this article), it is impossible for the numerosity requirement to be met for class action certification.
Numerosity of the members in the class is affected by the timing of the purported class members entering and exiting the system that they claim caused the alleged damages. Therefore, each individual’s situation must be examined in order to make this determination.
In just about all banking and financial class action cases that I have seen, it is a certainty that the people who have alleged damages were damaged in unequal amounts, and were damaged by various combinations of the factors that resulted in the damages. Some people sustained more damages and others sustained less damages, or even no damages at all. Actual damages, if any, typically vary from person to person and require an individual analysis for each person’s situation in order to insure a fair resolution.
The identified representative class members often report differing damages, clearly indicting that the level of damages for each victim will require an individual analysis in order to insure a fair damages estimate and resolution.
Because the impact, if any, on each purported prospective class member would be different, fair resolution requires that the Court fashion an appropriate remedy for each individual class member based upon the current status of their credit report, any prior applications for credit, any pending applications for credit, and any ongoing loans which may have been affected by any items improperly reported on their credit history. These items will vary from class member to class member.
Differences in Damages Due to Differences in Mitigation Efforts
Purported class members always apply different levels of diligence in their efforts at the mitigation of purported damages ranging from no action at all to highly involved mitigation efforts. This factor is important in establishing the damages, if any, sustained by each individual, and requires individual examination.
The purported class members would certainly start out with varying credit standings and credit situations so that any damages that did occur certainly would affect them to different degrees.
There are three major credit reporting companies in the United States that maintain credit information on individuals and issue credit reports reflecting their findings. It is not unusual, and in fact is the norm, for all three credit reporting agencies to issue their report for an individual on a certain day and reflect different information on each of the three credit reports. This factor means that commonality of purported damages, if any, could not exist since the alleged credit damages would be reported differently for each person in the purported class.
When a person sustains a reduction in their credit rating or their perceived creditworthiness, there are many possible causes or factors that could contribute to their decreased credit rating including late payments on the subject debts, late payments on other debts, too much debt in relationship to their ability to pay, repossessions, eviction, delinquent income taxes, delinquent real estate taxes, tax liens, bankruptcies, changes in employment, changes in income, bankruptcy, foreclosure, multiple credit inquiries, types of credit the person has, available balances on existing credit, length of time the person has had credit, and many other factors, all of which would vary greatly from purported class member to purported class member. All of these factors and others are taken into consideration when a person’s credit score is calculated and their creditworthiness judged, and this renders it impossible to claim that a particular class member’s claim is typical of the claims of all of the other purported members of the class.
In order to accurately understand any potential damage to the individual claimants’ credit rating, the credit reports from the three different agencies would have to be reviewed from multiple intervals. The first review would have to occur of the reports from a time prior to the alleged identity theft in order to establish the consumer’s prior credit standing. A second review would have to occur at the time of the discovery of the alleged fraudulent transactions to determine exactly when the alleged inaccuracy was first reported. A third review would have to occur after the individual credit reporting agencies were notified of the alleged fraudulent transactions and a request was made to rectify the situation to document the challenge to the reported loan(s). Yet a fourth review would have to be completed at least 30 or 60 days afterward to determine if appropriate corrections were made. This requires a review of a minimum of 12 different credit reports for each individual claimant. In order to be certified as a class action, common questions must predominate; but based upon all of the variables that can appear in each person’s credit history, it is unreasonable and highly improbable that all of the class members will have common claims.
Highly Likely That Some Purported Class Members Actually Sustained No Economic or Credit Damages
It is highly likely that many of the individuals involved in a purportedly credit damaging or economic damaging situation may have suffered no damages at all. If a plaintiff timely notified the credit reporting agencies of the alleged fraudulent transaction, and the situation was quickly remedied such that there was no effect on any further credit applications, then that individual suffered no damages. Also, it is often the case that some of the members of the purported class may have had preexisting credit problems that had already diminished their credit standing. It is also possible that the particular one incident in question may not have significantly reduced a prospective class member’s credit standing.
For the reasons cited above, a determination of the existence of actual damages has to be followed by a determination of the amount of the alleged damages; and this could only be accomplished on an individual basis, as such, the individual claimant’s interests would predominate over any common issues.
Risk of Inconsistent Judgments
Furthermore, lumping together in one common basket all of the damages claims that purported class members claim runs the risk of inconsistent judgments being reached in the resolution of the damages claims. To avoid this risk, the individuals’ claims must be examined individually in order to reach a fair conclusion in all cases.
In the vast majority of the situations I have seen where someone attempts to define a class, it is quite often impossible to do so since it is often the case that prospective claimants were not only damaged for different periods of time, damaged by various combinations of elements that produced the damages, employed varying mitigation efforts, and many other factors that resulted in their being damaged to various degrees, including many prospective class members who were not damaged at all. As a result, each of these prospective damages claims must be examined individually.
ABOUT THE AUTHOR: Don Coker
Expert witness and consulting services. Over 450 cases for plaintiffs & defendants nationwide, 108 testimonies, 12 courthouse settlements, all areas of banking and finance. Listed in the databases of recommended expert witnesses of both DRI and AAJ.
Clients have included numerous individuals, 60 banks, and governmental clients such as the IRS, FDIC.
Employment experience includes Citicorp, Ford Credit, and entities that are now JPMorgan Chase Bank, BofA, Regions Financial, and a two-year term as a high-level governmental banking regulator.
B.A. degree from the University of Alabama. Completed postgraduate and executive education work at Alabama, the University of Houston, SMU, Spring Hill College, and the Harvard Business School.
Called on by clients in 28 countries for work involving 57 countries. Widely published, often called on by the media.
Copyright Don Coker
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.