Earlier this month I received an email from Zappos with the subject “Settlement Notification re: 2012 Security Incident.” Sure enough, Zappos had a security issue in 2012 and the result of the class action lawsuit was that they’d give their affected customers a 10% off coupon on any order placed before January. As far as the typical class action settlement this was a surprisingly fair offer since it is something I’d actually use.

This is reminiscent of the Experian settlement which gave affected customers the option of either $125 or free credit monitoring. To no one’s surprise nearly everyone chose the $125 option. Lo and behold it’s not actually $125 but instead “up to” $125 and given the volume it turns out this option is estimated to be only $7. Makes me wish I chose the credit monitoring!

It really should not be possible for a company to pay a class action settlement through its own services. While some may be good (Zappos), others are not (Equifax), and in general it leads to some perverse incentives. The goal should be punitive towards the company but by being able to pay in kind it’s another opportunity to drum up business. For Zappos it was a free opportunity to email their customers with a promotion one may have seen anyway. For Equifax it was signing them up to a service that doesn’t cost them anything to offer and expires after a few years. Imagine if companies actually had to pay real money for their screwups without any of the “up to” language - we’d see much better care of customer data.