Compare and contrast: Costco renewal settlement

Not all class action settlements are anti-consumer, and CCAF does not reflexively oppose settlements. I had two people independently approach me about a class action settlement over Costco’s membership renewal policies.

Prior to the suit, if one purchased a one-year $50 membership on February 1, 2006, let it expire, and then renew your membership on March 1, 2007, the one-year membership would expire February 1 rather than March 1, 2008. Plaintiffs sued arguing that this was consumer fraud. After some rulings adverse to it, Costco agreed to settle by providing a free month or three to class members.

The settlement was structured the way a settlement should be. Class members automatically received the benefit from the settlement without having to file a claim form: Costco’s computers would automatically grant the benefit to its customers. We know that the class members prefer that in-kind relief, because they had already demonstrated their preference by exchanging cash for membership benefits, so the in-kind offer gave them full cash-value without loss of consumer surplus. With 50 million Costco members, even if only 10% were affected by the renewal policy, there would be a benefit to the class of over $21 million–though of course that is a guestimate and the real figure might well be more or less. The attorneys are requesting $5 million or so in fees, which is a good living, but not the greediness of demanding 25 or 35% of the pool, assuming that they have not inflated their hours on the case.

I told both people who contacted me that I would not be opposing this particular settlement.