The deadline for EU Member States to implement the Representative Actions Directive is quickly approaching. The European Commission has stipulated that the Directive should be in force and applicable as of June 25, 2023. Only two Member States – the Netherlands and Lithuania – reached the original deadline of December 2022. If other countries miss the June deadline, they face infringement proceedings. Now the remaining Member States are scrambling to catch up.
The Directive requires each Member State to have a collective/class action law in place to allow consumers to sue for damages for breaches of over 60 EU consumer protection laws. The Directive allows for domestic as well as cross-border claims.
The European Commission gave Member States wide latitude to implement the Representative Actions Directive as they see fit. This also means the Directive has few safeguards to protect consumers and businesses from abusive, U.S.-style litigation. Fortunately, there is an opportunity for Member States, especially those that have never had a collective action rule, to implement a system that works for consumers, not just for claimants’ lawyers.
Member States should be careful about modeling their collective action systems after the U.S. class action system. There are many issues with U.S.-style class actions, including the opt-out mechanism, where consumers are included in the class action without their knowledge or consent. Consumers who are not aware of and directly involved in lawsuits in their name are especially vulnerable to having their grievances (if they have a grievance) exploited by those who are involved and who have the most to gain: those directing the action. Opt-out collective actions are invariably led not by and for consumers, but by and for consumer groups, lawyers, funders and other backers with a financial stake in the action.
By contrast, in opt-in proceedings, the groups tend to include only claimants who are personally and actively interested in pursuing their rights. Thus, the likelihood of representatives acting against the group’s interest is greatly diminished.
Lawmakers should also consider enacting further safeguards to protect consumers from third party litigation funding (TPLF). TPLF is a multi-billion Euro industry where outside investors secretly fund and control lawsuits in exchange for a cut of any award or settlement. Member States should follow the example of Greece’s implementation of the Directive—it banned all third party litigation funding from their collective action system.
To help Member States as they implement the Directive, ILR released 12 recommendations to minimize litigation risk. These recommendations include:
- creating opt-in only collective actions systems;
- having strong criteria to become a “qualified entity” capable of bringing a collective action;
- creating a certification procedure;
- prohibiting punitive damages;
- enacting safeguards for TPLF; and
- prohibiting the use of contingency fees.
As of the end of April, only six countries have implemented the Directive. Member States should use this Directive as an opportunity to learn from the mistakes of the U.S. class action system and implement a collective action system that works for consumers, not just for claimants’ lawyers.
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