Digital Payments to Class Members Are Booming - What Practitioners Need to Know

  • By Francesca Castagnola
  • Dec 09, 2020


As distributing class action settlements through digital payment methods has quickly become a popular option, the key actors in class litigation – practitioners, judges, claims administrators, and others – have been rushing to understand the technology, its advantages and its risks.

To help practitioners and others better understand the digital payment ecosystem, Western Alliance Bank and Epiq Global co-hosted the webinar “Digital Payments: Best Practices for Efficiency in Class Actions,” presented by HB Litigation Conferences. Featuring a panel of experts from the full spectrum of class-action professionals, moderated by Aideen Gaffney, VP at Epiq Global, the webinar provided a wealth of insights on the latest developments in digital payments.

The panelists included:

  • Adam Zapala, Partner, Cotchett Pitre & McCarthy LLP
  • Kim Stephens, Partner, Tousley Brain Stephens PLLC
  • Paul Karlsgodt, Partner, BakerHostetler
  • Chris Ljungkull, Director of Sales, DigitalPay
  • Honorable Suzanne H. Segal (Ret.), Signature Resolution
  • Aideen Gaffney, VP, Epiq Global (Notice and Claims Administration) – Moderator

Here are a few of the panel’s key insights:

Popular Platforms: While the number of digital payment options continues to grow, the most popular among consumers today are gift cards and the most ubiquitous retailers’ digital-payment applications. The former have grown in popularity since COVID-19 drove online shopping to new heights, making digital gift cards even more appealing. The latter represent the most trusted online platforms for transferring cash; many consumers use those applications for paying one another, and many online retailers use them for payment processing. Ljungkull also noted that the millions of “unbanked” Americans – those without traditional bank accounts – tend to prefer digital debit cards.

Attorney Considerations: Class counsel has two goals when choosing digital payment methods. First, to minimize transactional costs to preserve funds for class members. Second, to provide digital payments that are as close to cash as possible. Payment apps fit that bill well. The challenge with digital gift cards from retailers is avoiding the impression that class members are simply getting coupons – a practice that’s often frowned upon by judges. Interestingly, however, the largest online retailers’ vast, seemingly universal inventories, give them an advantage – their gift cards are perceived as being almost like cash. On the defense side, the appeal is also efficiency; digital payments may also help reduce funds lost to state escheatment when checks go uncashed.

No Size Fits All: Most settlements involving large numbers of plaintiffs provide multiple options to class members. Digital payments can become problematic when settlement amounts drop too low – if class members are receiving less than $1 each, most retail cards aren’t an option, except for the very largest online retailers. Similarly, digital payments typically aren’t appropriate for settlements above $2,000 or for matters where the class is made up of businesses rather than individuals.

Insights From the Bench: While judges have generally become more receptive to digital payment methods, attorneys proposing digital payments are likely to encounter questions from the Bench, as part of the judicial review of the pending settlement terms. For example, judges typically press attorneys on claims rates, and with digital payments, there may be further scrutiny on topics ranging from the ease of use of the proposed payment method to the speed within which the relief will be in the class members’ hands. These and other questions from the Bench are becoming easier to answer as attorneys gain more experience with digital payments and are able to point to other cases with successful claims rates involving settlement funds being disbursed via a digital payment option, as opposed to the traditional payment method by check.

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With more than $50 billion in assets, Western Alliance Bancorporation (NYSE:WAL) is one of the country’s top-performing banking companies. The company is again #1 best-performing of the 50 largest public U.S. banks in the new S&P Global Market Intelligence listing for 2020 and ranks high on the Forbes “Best Banks in America” list year after year. Its primary subsidiary, Western Alliance Bank, Member FDIC, helps business clients realize their ambitions with teams of experienced bankers who deliver superior service and a full spectrum of customized loan, deposit and treasury management capabilities. Business clients also benefit from a powerful array of specialized financial services that provide strong expertise and tailored solutions for a wide variety of industries and sectors. Most recently, the bank added to these capabilities with the acquisition of AmeriHome Mortgage, a leading national business-to-business mortgage platform. Serving clients across the country wherever business happens, Western Alliance Bank operates individual, full-service banking brands and has offices in key markets nationwide.