Rising Fraudulent Claims Submitted to Class Action Settlement Funds Heighten Settlement Risk
Consumers frequently receive only a paltry fraction of class action settlement funds, which are instead doled out to plaintiffs' lawyers, cy pres recipients, and administrators.
Now this problem is compounded by a recent development: an explosion in fraudulent claims submitted to claims administrators. One claims administrator recently reported that it received 80 million fraudulent claims in 2023, an increase of 19,000% since 2021. This disturbing rise correlates with a transition from paper processing systems to digital systems using vendors such as Zelle, PayPal, and Venmo. Fraudsters appear to be using bots operating in foreign countries and other methods to submit fictitious claims. In several instances, this has resulted in claim numbers far exceeding the estimated class size.
In light of these developments, defendants must take measures to mitigate risk. We propose several strategies. First, use capped settlements to protect against runaway costs and claims that far exceed estimated class size. Second, employ a sophisticated claims administrator with verifiable fraud control systems. Third, negotiate risk-shifting terms in the administrators' agreement. Fourth, include provisions in the settlement agreement enabling the parties and administrator to identify and reject claims with significant indicia of fraud.
