Settlement for Financial Technology Provider Data Privacy Granted Preliminary Approval

CPW has previously covered the In re Plaid Inc. Privacy Litigation, No. 20-3056 (N.D. Cal.), in light of consumers’ increasing use of fintech apps to do business, transfer and invest funds, and otherwise manage their finances electronically.  Last month a federal court approved a class action settlement to resolve Plaintiffs’ claims in the consolidated cases brought against Plaid.  Read on to learn more.

First, some background.  Plaid has a platform for users to connect their bank accounts to payment apps.  The Plaintiffs in In re Plaid Inc. Privacy Litig. previously alleged that Plaid has “exploited its position as middleman” to obtain app users’ banking login credentials and then use that information to access and sell transaction histories, in the absence of app users’ consent.  In the consolidated class action litigation, Plaintiffs raised common law privacy claims as well as violations of federal and state privacy and consumer protection laws.

Earlier this year, after protracted litigation (including a motion to dismiss practice that resulted in a partial dismissal of Plaintiffs’ claims), a settlement was reached between the parties that included a non-reversionary $58 million cash fund.  Members of the class, which includes “all United States residents who own or owned one or more ‘Financial Accounts’ from January 1, 2013, to the date preliminary approval of the Settlement is granted,” would be eligible for a cash payout.  The settlement also incorporated injunctive relief.  Plaid agreed to, among other measures: (i) delete certain data from its systems; (ii) inform Class Members of their ability to manage the connections made between their financial accounts and chosen applications using Plaid and delete data stored in Plaid’s systems; (iii) minimize the data Plaid stores; and (iv) enhance disclosures in Plaid’s End User Privacy Policy about the categories of data Plaid collects, how Plaid uses data, and privacy controls Plaid has made available to users.  The settlement provided that Plaid will commit to these measures for at least three years.

In granting preliminary approval of the settlement, the Court noted a general policy in the Ninth Circuit favoring settlement of class actions.  The Court, consistent with Supreme Court and Ninth Circuit precedent, first “assess[ed] whether a class exists,” with “heightened” attention to Federal Rule of Civil Procedure Rule 23’s requirements.  Second, the Court considered whether the proposed settlement “is fundamentally fair, adequate, and reasonable,” and not the result of collusion among the parties.

In the context of this framework, the Court noted that continued litigation was “inherently risky” for Plaintiffs: “Plaintiffs allege a large class challenging conduct since 2013, implicating at least four different fintech apps and financial institutions.  Plaintiffs maintain that there is a ‘core continuity of practices involving relatively simple issues,’ but Plaid would almost certainly strenuously oppose class certification based on purported differences between apps and financial institutions, and differences in their practices and disclosures over time.”  Furthermore, the Court found, “[t]here is also a risk to individual and class recovery based on the possibility of Plaid prevailing on the merits of Plaintiffs’ claims at any stage of the litigation, including on appeal.”

According to the Court’s order, class members will now have until March 4, 2022, to submit objections to the settlement and request to be excluded from the class.  A final approval hearing is scheduled for May 12, 2022.  For more on this litigation and other financial privacy data privacy litigation trends, stay tuned.  CPW will be there to keep you in the loop.