Is Joining a Class-Action Lawsuit a Quick Fix for Your Financial Woes?

Unexpected Insight on Class-Action Lawsuits

“I’m not gatekeeping because everybody should get free money.”

That line stopped me in my tracks while I was scrolling through TikTok recently. I watched the video with rapt attention: Speaking in front of a screenshot of a Venmo payment, the creator urged viewers to sign up for any and all class-action lawsuits they qualify for.

The Fine Print on Class-Action Lawsuits

Why? To get a settlement, of course — “your share of the pie,” she promised.

Class-action lawsuits and settlements are particularly hot topics right now. Some 17 million people are due to get checks from Facebook once its user privacy settlement clears a few final legal hurdles. Financial aid recipients who attended a handful of colleges can get part of a $284 million settlement, and some Cash App users may be able to claim up to $2,500 in a case tied to data breaches.

Is Joining Class-Action Lawsuits an Easy Way to Make Money?

I called Paul M. Vaaler, a business and law professor at the University of Minnesota, to learn more. At its core, he says, a class-action lawsuit is a lawsuit brought on behalf of a group of people or businesses who suffer common injuries. Typically, one main plaintiff and their attorney(s) take the lead on suing an entity in connection with a bigger issue that’s affected a large swath of folks.

The Truth About Class-Action Lawsuits

Class-action lawsuits are popular because plaintiffs tend to have more leverage when they band together as opposed to suing separately. They are also an efficient way for the courts to deal with millions of people affected by the same issue who would otherwise file individual cases.

Settlements and Taxability

Vaaler says most class actions involve securities (like when investors sue because a firm does something to make them suffer a financial loss), employment (like when when certain employees suffer discrimination), consumers (like when when a bad business practice harms customers) or personal injury (like when a defective medical device physically harms patients).

The vast majority of class-action lawsuits get settled, meaning the defendant agrees to forgo a trial and pay a sizable sum in damages. But it’s not necessarily a quick process.

The Bottom Line

Settlements from class-action lawsuits can be profitable for individual people, but they’re not a get-rich-quick life hack.

Signing Off