Deceptive claims flood US class action settlements, system integrity at risk

Fraud floods settlements: Scammers are inundating US class action settlements with deceitful claims, posing a significant threat to the integrity of the system. Artsana, a producer of child car booster seats, faced this issue when it settled a dispute regarding alleged misinformation about its Chicco-brand seats, offering $50 to eligible purchasers.

Despite knowing it had sold around 875,000 seats, Artsana received over 3.3 million claims, prompting it to challenge the settlement due to the influx of dubious claims.

Fraudulent claims surge

The rise in fraudulent claims has been staggering, with more than 80 million dubious claims submitted in 2023, marking a 19,000 per cent increase since 2021, according to a forthcoming report by Digital Disbursements. 

This surge in fraud threatens to deplete settlement funds and disrupt the class action process. Estimates suggest millions of dollars may have been diverted from settlements due to successful fraudulent activities.

Instances of fraudulent claims have emerged across various settlements, such as the case involving Grande Cosmetics, where over 6.5 million claims were filed for a $6 million settlement. Similarly, in a $45.5 million settlement against Altria over its Juul products, approximately 80 per cent of the 14 million claims were deemed fraudulent by administrators

Fraud tactics evolve

Fraudulent activities are particularly prevalent in cases involving false advertising or defective products with minimal payouts and lenient proof of purchase requirements. While measures have been taken to combat automated bot submissions, fraudsters have adapted by utilising stolen identities and addresses to collect payouts.

The proliferation of fraudulent claims not only jeopardises settlement integrity but also undermines legitimate claimants' chances of receiving their entitled compensation. Administrators are challenged to strike a balance between preventing fraud and facilitating genuine claims, as overly stringent measures could impede legitimate claimants' access to settlements.

In the long term, the prevalence of fraud may deter companies from settling cases, fearing their funds will be misappropriated. Thus, addressing fraudulent activities is crucial to safeguarding the efficacy of the class action system and ensuring fair compensation for legitimate claimants.

(With Reuters Inputs)