The Age of Mega Filings: Four Post-Settlement Considerations for the Care and Safety of Funds


Francesca Castagnola

July 03, 2019

In an age of mega class action filings, attorneys selecting a bank to hold settlement funds must consider far more than class size. Given the size of some payouts, it’s important not to forget about actual settlement size. 

If the case consolidation behind the mega filings that we’ve seen in recent years continues, it will become more important than ever to understand the banking implications of a settlement agreement and to work with a banking resource with whom you have a trusting relationship. Given the duration and individual intricacies of settlements, banks should be active in supporting all phases of the process, from escrow through distribution, with a single point of contact.

Once a settlement agreement is in place, discussions with your banking resource should focus on a few key areas, no matter the type of class action:

Bank Strength
When evaluating potential banks, there are five components they should have in place:

  1. Capital adequacy: How much capital does the bank have? There should be enough capital reserved for the loans the bank is willing to give out. Banking regulations require minimum capital adequacy ratios that provide useful guidelines.

  2. Asset quality: Banks should make quality loans that will be paid back accordingly. The FDIC requires banks to report their non-performing assets to total assets ratio.

  3. Earnings: Profitability is a key indicator of a high-performing bank. The standard measures of evaluating banks’ profitability are Return on Assets (ROA), Return on Equity (ROE) and Net Interest Margin (NIM).

  4. Liquidity: A bank’s ability to meet cash and collateral obligations without incurring substantial losses can reduce risk exposure of the bank’s deposits and lines of credit. It’s vital to understand a bank’s liquidity position.

  5. Management: You should have confidence that the bank’s leadership has the experience and knowledge to deliver service you can rely on.

Industry Expertise
When it comes to settlements, the importance of the bank’s role in that process makes it critical to discover their depth of knowledge. In an environment where time is money, attorneys cannot afford to waste their time educating their banking resources about class action-specific fiduciary accounts.

Banks also must understand the lifecycle of a settlement fund from escrow through distribution, and the different parties that might be involved including attorneys, claims administrators, special masters, lien release specialists and others.

Transparency throughout the process is also critical. Attorneys and claims administrators responsible for class action funds deserve to know every detail about how settlement funds are being managed and distributed. They should seek a bank that is responsive, accurate and helps the decision-maker avoid bureaucratic red tape to get the answers they need.

Fraud Mitigation
Attorneys should also seek banking resources who can ensure they have proper risk management tools in place to protect the settlement process. Security measures, including cybersecurity programs that monitor account holder trends such as frequent password changes, are among the most important tools. Similarly, using encrypted online programs for important documents ensures information will remain confidential. Cash-management services, including Positive Pay, Account Reconciliation and customized monitoring reports, offer automated fraud detection systems. Even when those tools are in place, attorneys or staff managing settlement funds should also conduct callbacks to their vendors or clients to verify that payment instructions are being followed.

Fund Protection and Return
It’s critical to work with bankers whose thoughtful and comprehensive expertise can deliver the highest returns without putting the settlement fund’s principal at risk.

Settlement, escrow and distribution phases demand around-the-clock attention, as does adhering to investment strategies. Preserving the principal of a litigation fund is critical, and so is ensuring the best rate of return for the class. Therefore, it’s important to work with a bank that understands and offers expanded FDIC coverage and other government backed fund options.

Questions to Ask Before You Choose a Bank:
Choosing the right bank is a daunting task, but there are helpful questions you can ask as you begin evaluating potential resources. Among them:

  • Am I working with a decision-maker?
  • Is the bank streamlining processes or delivering customized reporting to help me save time?
  • Is the bank a credible institution and are they meeting the industry benchmarks described above?
  • Does the bank have a variety of federally guaranteed deposit options and terms? Is the rate of return competitive?
  • Will the fund get tailored, personalized attention?
  • Will the fund be safe and are fraud risk management tools in place?

No matter the size of the settlement class, those responsible for a fund should ensure that they are getting the sound, strategic support they require from their banks and the peace of mind that comes with having a dedicated banker to offer insights and answer any questions along the way. Doing so is the best way to safeguard your clients’ funds – and pave the way for a smooth and secure settlement distribution process.