Wednesday

22nd Jan 2020

EU needs 'class action' law suits, consumer rights groups say

  • Estimated unclaimed consumer damages amounted to €20 billion in 2010 (Photo: Ledenyi)

The US model of class action - grouping in one court case all consumers who have been hurt by a company - is still a long way from becoming reality in the EU due to "intense" industry lobbying, consumer rights experts say.

Whether paying bogus fees when renting a car, having your phone bill topped up with calls you never made or not getting compensation for damaged products you purchased online - most people in the EU do not take such frustrations to court because the cost of a trial can be ten times higher than the recovered sums.

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But if thousands or hundreds of thousands of customers are grouped in one single case, known as "class action" in the US, the compensation becomes worth fighting for.

"Class action serves a vital function to protect consumers and it's very important to have this safety net when regulators and law enforcement cannot help, because it's out of their remit or it takes too long," Julie Brill from the US Federal Trade Commission said on Tuesday (21 June) during a 'Transatlantic Consumer Dialogue' conference in Brussels.

In the EU, 14 out the 27 member states have some form of group action, but there are no ways to fight collectively for consumer rights in cross-border cases, for instance in online scams.

According to the EU consumer organisation Beuc, the estimated unclaimed damages were as much as €20 billion in 2010. And according to the bloc's own opinion polling service, Eurobarometer, 79 percent of EU citizens want a group action mechanism to protect their rights.

A draft law on compensating all customers of a company found to have played foul according to EU competition rules was repelled in 2009 - just a few days before a key vote in the European Parliament - ostensibly because the EU commission wanted to include more areas than just competition.

A new public consultation process has been launched earlier this year, with the commission now expected to draft a 'communication' in October summing up the different views, but not proposing any law at this stage.

"Basically we are back to square one, after several years of papers, consultations and draft laws. A communication is the lowest the commission could offer," Benedicte Federspiel from the Danish consumer rights organisation told this website.

Noting the commission's reluctance to adopt the US term 'class action', Federspiel said the legislative delay is due to the powerful industry lobbying. "It took 20 years to pass the product liability directive, also because of the intensive lobbying from industry. They were even citing false cases - such as the cat in the microwave - to show how terrible it would be if the law passed," she said.

The main argument from the business sector - that it would flood them with "frivolous" court cases, is "nonsense," she added.

"Group action - or collective redress how the commission prefers to call it - will hold companies accountable and give rightful compensation to people who've suffered damages. The question is if the commission chooses to listen to industry's arguments."

Another fear - that companies will go bankrupt - is also unfounded, she said: "We've had group action in Denmark for three years now and no company went bankrupt because of it. Of course, the problem arises when the bank or company is already bankrupt and owes a lot of money to a lot of people."

Speaking at the event, Joanna Darmanin, chief of staff for consumer protection commissioner John Dalli, said her services aim to provide a "mechanism for victims" which respects the "legal traditions in various member states and avoids abuses."

"We've seen that class actions led to abuses in the US and we have to avoid that toxic cocktail of punitive damages, contingency fees, opt-outs and so on," she said.

For his part, Ira Rheingold from the National Association of Consumer Advocates warned against the misconception that all class actions in the US are abusive. "All the misinformation about class action is part of a concerted, long-term, multi-pronged effort by corporations to slowly, but surely, deregulate themselves by eviscerating the rights of consumers," he said.

A lawyer himself, Rheingold conceded that some of his colleagues "charge a lot of money in trial fees," but noted that companies mostly agree to settle and pay compensations rather than go in front of a jury.

Settlements and mediation outside the courts is the preferred option for European businesses as well. At an April event in Brussels, Jerome Chauvin from Business Europe said that in order to get a "quick solution" for consumers, "out-of-court paths have to be given preference."

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