$4M settlement for robocall violation against subprime auto lender 'too small'

A federal judge in Pennsylvania, saying the amount would shortchange impacted consumers, has refused to approve a proposed $4 million settlement in a class action that alleges subprime auto lender Flagship Credit Acceptance violated the Telephone Consumer Protection Act.

U.S. District Judge Michael Baylson rejected the settlement in part because one-third of the money would have gone to attorney fees while each qualifying member of the class — those from the more than 300,000 who submitted claims in a timely manner — would have received $35.30, far below the $500-per-call penalty set by the anti-telemarketing law. "The parties have not documented or explained why $4 million is feasible but a higher number is not," the judge wrote in his ruling last month.

If the plaintiffs were to win at trial, Flagship would be on the hook for nearly $164 million if each class member had received only one illegal robocall and triple that amount if the plaintiffs proved the lender had acted willfully, the judge wrote. The Telephone Consumer Protection Act has no cap on the total damages.

The act, passed by Congress in 1991, prohibits robocalls without the receiving party's consent, unless "such calls are necessary in an emergency situation affecting the health and safety of the consumer." The lawsuit accuses Flagship of placing automated and prerecorded phone calls to the mobile phones of 327,924 people in violation of the act. Of that number, more than 67,000 people filed claims to be a part of the lawsuit.

Auto lenders and dealers have long struggled with compliance. Violations can include issuing unwanted advertising messages to current and prospective customers — which cost a Florida store $4.8 million in December 2018 and Lithia Motors Inc. $2.5 million in 2011 — and auto lenders soliciting payment on delinquent loans. Nissan Motor Acceptance Corp. agreed to pay $2.2 million last year to settle a class action alleging that instead of contacting customers indebted to the lender, it contacted third parties, such as family members, without first securing consent.

Similar to the Nissan captive case, the complaint against Flagship includes people who received calls from the lender but didn't have auto loans with it. Lead plaintiff Robert Ward "is not a Flagship customer yet has been bombarded with automated and prerecorded calls made without his consent and over his objection," the complaint filed in federal court in Philadelphia alleges.

A Telephone Consumer Protection Act class action can be a "formidable enforcement tool" because of the high per-violation penalties, said Christopher Peterson, a University of Utah law professor and director of financial services at the Consumer Federation of America. He is not involved in the case.

Such penalties can deter violations and encourage lenders and other businesses that contact consumers by phone "to have robust compliance programs," Peterson told Automotive News.

A lawyer for Flagship declined to comment on the ruling, and the lender did not file a formal response to the complaint, but it has said it is unable to pay more than the $4 million. The judge, in his ruling, took issue with that.

"No underlying financial information was provided to the class members, compounded by the court's belief after review of the financials that this statement is inaccurate," Baylson wrote. "Class members may reasonably be left wondering why a company with almost $3 billion in assets can only afford a $4 million settlement."

The judge suggested the parties discuss a high-low agreement. With such an agreement, a settlement guarantees a floor that ensures adequate recovery for each claimant while capping the defendant's total liability.

Jackie Charniga contributed to this report.