Upon joining my fellow Motley Fool writers, I nominated Bentham IMF Ltd (ASX: IMF) as my favorite stock across the entire market. I mention this because in an article published yesterday I mentioned another two of my four top picks. I will detail later my reasons for liking Bentham IMF, but first let's examine the unique class action the litigation funder is potentially launching for late bank fees.
A unique class action:
As reported in today's The Age newspaper, Bentham IMF will potentially fund a claim against nine banks, including the big four and three subsidiaries of Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC). Let's first examine characteristics peculiar to an open class action.
1. Every customer that has suffered from a late bank fee is included in the class action, without being required to register (as in the past). This will significantly raise the size of damages.
2. There will be no time limit on how far back in time fees may be reimbursed by the banks.
3. Bentham IMF will take 22.5% of any winnings, subject to approval by the court.
Why a potential class action?
Prior to lawyers Maurice Blackburn lodging the claim next Tuesday, there will be legal duels at 20 paces. Next Monday, Australia and New Zealand Banking Group (ASX: ANZ) will be contesting the no time limit (Point 2 above), as well as contesting with Maurice Blackburn last February's ruling that ANZ's late fees of up to $35 are "extravagant and unconscionable" compared to the cost to the bank of as little as 50 cents.
Bentham IMF Ltd explained:
Formerly IMF Australia, this company is the dominant player in a relatively new sector that has largely been ignored by broking research analysts because lumpy earnings and variable dividends stray from the norm.
The reasons for the lumpy earnings are clear given the protracted nature and uncertain end dates for litigation and uncertainty over the settlement dollar value. The variability in dividends is explained by the same factors as well as the necessity to keep large amounts of cash on hand.
This latter point is used as a form of intimidation over defendants who know that such deep pockets will comfortably fund any case. It also explains why 60% of cases are settled before going to court and how the company achieves an outstanding overall win rate above 90%.
