In July 2022, a California federal judge approved a $58 million class action Plaid settlement. According to court documents, the fintech startup, which owns Venmo, Chime, Stripe, and a few other similar apps, sold customers’ financial information without their consent. Customers who obtained Plaid logins between 2013 and 2021 are eligible for a share of the settlement funds.
The first round of $35 payments went out through PayPal or Venmo in November 2022. A second round of payments went out in February 2023. The attorneys who handled this case earned a lot more than $35. This imbalance prompts many people to criticize large class action settlements, like the Plaid settlement. But all things considered, a class action lawsuit is the best solution to a very complex legal problem.
Personal Financial Information theft is a big business. Every year, about 15 million Americans lose almost $6 billion to PIF theft. Only a handful of these cases involve shady hackers who set up shop in large vacant warehouses on sketchy waterfronts. Most PIF schemes are much more low-tech. Common examples include:
- Selling or otherwise misusing such information without the owner’s consent,
- Leaving such information on a thumb drive or other unsecured device which someone simply walks away with, and
- Working on poorly-secured public WiFi connections.
Economic loss is just the beginning. PFI theft is very unsettling. Furthermore, once this information gets out, it’s impossible to put the genie back in the bottle. These theft victims must take additional security precautions and keep a sharp eye on all financial transactions.
Because so much is at stake, companies have a legal duty to protect PFI. Professionals, like doctors, lawyers, and accountants, have an even higher duty of care. Banks and fintechs usually have robust online security as well as strict BYOD (bring your own device) and remote work rules. But these rules don’t prevent company higher-ups from playing fast and loose with PFI.
These potential losses help explain why a company like Plaid must pay money to people who may have suffered negligible economic damages.
These legal cases are very time-consuming. They go through basically three phases: the lawsuit, the settlement, and the distribution of settlement funds.
These lawsuits are crazy complicated. In addition to proving all the elements of theft, as discussed above, the plaintiffs must also prove that the matter should be a class action lawsuit.
Basically, a judge must rule that courts cannot handle the lawsuits individually, everyone had the same basic experience, and the class representatives, both parties and lawyers, adequately represent the entire class.
Court-appointed mediators usually oversee settlement negotiations. These mediators ensure that both sides negotiate in good faith. “Take it or leave it” is not a good faith offer or counter-offer. Judges usually approve class action settlements, and someone usually objects to the settlement terms.
Finally, a court-appointed administrator oversees the distribution of settlement funds. The administrator must identify everyone in the class, verify their eligibility, and distribute payments fairly.
If everyone does their jobs correctly, including the plaintiffs’ lawyers, an equitable settlement compensates class members and gives companies like Plaid a responsibility lesson they won’t soon forget.
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