Companies should not mislead consumers about their products. Some do anyway. Those companies should be held accountable for their deception, not only because they lied but also to deter other companies from lying.
No one can seriously dispute any of these points, but what is the most effective way to stop businesses from deceiving consumers? We have state and federal regulatory agencies, of course, but regulators would be the first people to tell you that they can’t police every advertisement, label and package put out by businesses selling products to American buyers. That’s why state consumer protection laws give customers the rights to bring their own cases — except that, as a practical matter, individual consumers don’t really drive litigation against corporations that supposedly deceived them. Class action lawyers do, because they can represent buyers whose individual claims wouldn’t otherwise be worth pursuing.
Consumer class actions over deceptively advertised low-cost items are a remarkably inefficient vehicle for assuring the integrity of the consumer marketplace. Here, again, there’s really no legitimate argument to the contrary. I don’t mean to impugn the intentions of class action lawyers. Most (though not all) of them are prosecuting legitimate cases on behalf of consumers they truly believe to have been deceived by false corporate advertising. They force defendants to change misleading labels, ads or packaging and to agree not to use the deceptive material again. They also sometimes deliver money unclaimed by class members to charities, usually ones involved in righting the alleged wrongs in the case.
On the other hand, plaintiffs lawyers are awarded fees based on the size of the settlement they obtain, which is an incentive to sue deep-pocketed companies, but not necessarily the most egregious offenders. Class actions are procedurally complex, so they eat up a lot of judicial time. And in the end, an infinitesimal number of consumers end up with cash compensation for being snookered. There’s scant empirical data on claims rates in class actions over low-cost items, but in a recent declaration in a suit involving false advertising allegations against Duracell, a claims administrator said that the median claims rate across hundreds of cases in which purchasers received indirect notice — which is how consumers find out about most settlements involving low-cost items — was .023 percent. That means that for every 4,350 purchasers of an allegedly deceptively advertised product, one person actually filed a claim for compensation.
Proponents of consumer class actions argue that their most important benefit is something that can’t be calculated: They scare corporations straight. No business wants to spend money paying its own lawyers to defend a class action, and then paying lawyers for the class through a settlement. That’s a good argument, especially because it’s impossible to refute. We’ll never know how many companies thought better of a misleading label because it was worried about defending a class action.