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Success in getting refunds to people depends principally on whether the FTC has a reliable list of customers, including their contact information and the amount of money they spent. Usually, the FTC has this information, and it mails checks out to a list of known customers. In some cases, there is no list of known customers or there is insufficient contact information, and the agency must use a claims process to identify people who should receive a refund. There are at least six steps involved in every refund program:

  1. Identify who is eligible for a refund.
  2. Determine how the money will be divided.
  3. Mail checks.
  4. Update names and addresses as needed.
  5. Consider whether an additional check mailing is feasible.
  6. Send any remaining money to the U.S. Treasury.

Identifying who is eligible for a refund

FTC court orders typically require the company to provide a list of customers, their contact information, and how much each customer paid. If the agency obtains a reliable list of eligible recipients, then the agency mails checks directly to them. This year, in cases where the FTC used company data to mail checks, an average of 64% of people on the list got a check and cashed it.

Without a list of customers with contact information, getting refunds out may require a claims process. In such cases, the people affected must apply for a refund. The agency might conduct a media campaign and use paid advertisements to let people know that refund money is available and encourage them to visit our website to apply. In other cases, the agency uses whatever minimal data is available, such as a consumer’s email address, to tell consumers about the refund process. A claims process typically increases the administrative costs of the refund program. Generally, the FTC gets claims from 5 to 20 percent of potential claimants. In cases where there was a claims process, the average check cashing rate was 90%.

If there is no customer list and a claims process is not feasible, the agency’s Consumer Sentinel Database may be used to find eligible recipients. Consumer Sentinel contains millions of complaints from people who contacted the FTC, the Better Business Bureau, or other federal, state and local law enforcement offices. The FTC may search for complaints related to the defendants and use the contact information in those complaints to create a list of potential refund recipients. This year, the agency used Consumer Sentinel data to send refunds in five FTC matters: Money Now Funding, Payday Support, Regency Financial, Information Management Forum, and Vantage Funding. In cases where data from Consumer Sentinel was used to mail refunds, the average check cashing rate was 70%.

Determining how the money will be divided

In cases where the court order does not specify the parameters of the refund program, the FTC determines eligibility criteria and the formula for calculating payments to eligible recipients. In cases where the settlement fund is not large enough to provide full refunds to every customer, the FTC analyzes the data to determine how much individuals will receive. Key factors that influence these decisions include administrative costs, the size of the refund to each recipient, how much variation there is between the lowest and highest loss amounts, and other details about the case. In most FTC cases, the money is distributed on a pro rata basis, meaning that each recipient receives an equal percentage of his or her total loss.

Mailing checks and preventing fraud

The FTC has many mechanisms in place to verify the accuracy of the check mailing program and to confirm that only the approved recipients receive payment. First, unique identifiers are assigned to each potential claimant at the beginning of the case, which can be used to track that individual through the lifecycle of the refund program. Multiple staff members independently review each distribution authorization, check the proposed list of recipients against the master customer list, and investigate any discrepancies before approving a check mailing. The agency also conducts audits on closed cases to verify that only the rightful recipients received checks. In a claims process, we may ask for supporting documents or other information, and we apply analytical tools to root out false claims.

Once checks have been mailed, the FTC carefully tracks how many checks get cashed and how much money makes it into the hands of affected consumers. This year, the FTC completed 20 first time mailings for FTC cases. Here are the highlights of each case.

Updating names and addresses

A consistent challenge is finding the most current contact information for eligible recipients. Because court cases sometimes take years to resolve, the FTC has several tools for updating addresses.

Before mailing checks, every distribution list is checked against the National Change of Address (NCOA) system, which records change-of-address notices submitted to the U.S. Post Office. When a check is returned as undeliverable, the agency conducts an address search to determine if there is a more recent address for the consumer, and then reissues a new check to the updated address.

Considering whether an additional check mailing is feasible

After completing several rounds of address updates and check reissues, the FTC considers whether to use any remaining money to send a second round of checks to recipients who cashed their first check. For example, recipients might get a 50% refund with the first check and an additional 10% of their money back with the second check.

In general, if there are sufficient funds to provide a meaningful refund amount to recipients and to pay for the associated administrative costs, then the FTC sends a second round of checks. The FTC typically enforces a $10 minimum for checks we mail. This year, the FTC completed subsequent distributions in eight cases.