Consumer Collective Action Approved by the European Union
The new EU directive introduces stronger consumer protection and guarantees more legal certainty to companies.
To date, only a few Member States have introduced provisions that allow collective actions to be brought by groups of consumers seeking compensation for damage suffered collectively that was caused by the same professional. This has now been accomplished with the adoption of a directive, on 24 November 2020, which defines and harmonizes the EU's legal regime for class actions. While consumers are granted definitive new rights protecting them from illegal practices, professionals also benefit from certain protections against abusive lawsuits.
The directive intends to protect professionals from any abusive action by introducing the "loser pays" principle: the losing party will have to bear the winning party's procedural costs. Likewise, the directive precludes punitive damages in any damages award and specifies that "qualified entities" should be subject to thorough processes to avoid any conflict of interest and external influence in the event of third-party financing.
Each Member State will have 24 months to introduce a procedural mechanism, which will come into force six months later, and allow consumers to take collective action. This European-style class action will apply to a wide range of disputes (e.g., data protection, tourism, and financial services) and will be exclusively exercised through "qualified entities" which alone will have the right to bring such actions. These "qualified entities," such as consumer associations or public bodies, will have the right to bring collective actions to stop damaging behavior by means of an injunction or to obtain compensation on behalf of a group of consumers.
At the EU level, the exercise of cross-border procedures will also be subject to EU-wide common criteria (stability, proof of public activity, and non-profit-making purpose). At the national level, entities will have to comply with the criteria established by each Member State's legislation to represent consumers.
Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.