Safeguards needed in the collective redress proposal

Last year, the European Commission presented its proposal of representative actions for the protection of the collective interests of consumers that sparked a lively debate among stakeholders. The European Parliament managed to find consensus on the proposed directive quite swiftly and approved its position at the March plenary meeting this year.

On the other hand, the proposal has been stuck in the Council for a long time. However, the Finnish Presidency is eager to change this and get the general approach by the end of the year. Since the beginning of the negotiations, the main priority of European businesses was to put in place sufficient safeguards that would prevent abuses of the system that would lead to a rise of frivolous cases, as seen in the US. First of all, it is crucial to set out clear criteria for qualified entities in cross-border actions. The proposal should define the cases when the collective action is considered domestic and when it becomes cross-border. Only when the criteria are clear will there be no risk of forum shopping that would lead to qualified entities being set up ad hoc in countries with weaker national systems of collective redress. Furthermore, the proposal should give clear rules on how the funding of the litigation is carried out. Therefore, criteria such as the exclusion of conflicts of interest between the third party, the qualified entity and its members, the prohibition of excessive interest on the funds, the prohibition of contingency fees or the limitation of financial contributions by third parties should be anchored in the legislation.

The system should act as an assurance for consumers that their rights are fully protected and it shouldn’t turn into a new business for entities that would like to make profit out of it. Another key aspect of the proposal is the opt-in/opt-out system. Businesses think that the opt-in principle is a key aspect of the collective redress system and, therefore, it should be clearly supported in the proposal. If the directive gives Member States a possibility to choose from either opt-in or opt-out system, it will lead to different conditions in each country and increase the risk of forum shopping.