Will Directive 2020/1828 on the EU representative action lead to ‘better’ enforcement, as envisaged by the New Deal for Consumers?

The enforcement of consumer law has traditionally been based primarily on private enforcement, complemented by administrative enforcement. Because of longstanding issues of non-compliance with EU consumer rights, the Commission has introduced an ‘EU representative action’. In this tenth and final post in RENFORCE Blog’s special series on the enforcement of EU law, Esther van Schagen summarises the main features of the new Directive and explains some of the assumptions as to the effect of more enforcement which underlie the Directive and become visible in the impact assessment. Arguably, the Directive has overlooked opportunities that could have contributed to managing key barriers to bringing collective actions – the complexity, length and costs of collective redress – and which ought to be addressed in order to enhance cross-border enforcement.

One of the main conclusions of the Fitness Check of EU Consumer Law, completed in May 2017, was that compliance with consumer rights was a persistent problem. The Commission identified various reasons, such as a lack of awareness of consumer rights, but also identified enforcement problems.  Therefore, consumer law should be enforced better. Better enforcement was accordingly prioritised by the Commission’s New Deal for EU Consumers. The new EU Representative Action Directive formed part of the New Deal, and built on both the findings of the Fitness Check and the 2018 report on the implementation of the 2013 Recommendation on Collective Redress. The Directive aims to strengthen consumer confidence in the internal market and help to prevent distortions on competition.

The Directive was adopted after considerable debate, and various national parliaments submitted reasoned opinions. Better enforcement was generally welcomed, and debate focused on the politically-controversial points: the need to prevent abusive litigation, the degree of harmonisation, and the choice for an opt-in or opt-out procedure. The choice for an opt-in or opt-out system is arguably the core issue that determines whether consumers have to ‘opt-in, or whether consumers may become bound by a decision following collective redress unless they opt-out. The latter model, while more efficient, increases the risk, especially in cross-border cases, that consumers become a party in litigation or a settlement they were not aware of.

A new EU representative action

The Directive introduces a new EU-wide representative action to protect consumers against violation of their rights under the 66 Directives in Annex I. Thus, specific organisations gain the possibility to bring collective actions if situations of mass harm occur, which should improve existing opportunities for collective redress. These Directives in the Annex to the EU Representative Action Directive range from product liability, unfair terms in consumer contracts and unfair commercial practices to e-commerce, passenger rights and financial services. The EU representative action should form an ‘effective and efficient way of protecting the collective interests of consumers’. The Directive considerably widens possibilities to not only pursue injunctive measures, but also redress measures, which include compensation, but also repair, replacement, price reduction, contract termination or reimbursement of the price paid, as appropriate and as available under Union or national law. It is not possible to pursue punitive damages.

Similar to the Injunctions Directive, representative actions can be brought by qualified entities, designated by Member States, possibly upon request of organisations seeking to bring a representative action. A list of qualified entities with standing to bring a representative action will be published online by the Commission. Limiting the availability of representative actions to qualified entities should reduce the risk of abusive litigation. In addition, when bringing an action, the qualified entity should provide the court with sufficient information about the consumers concerned with the representative action, and the courts shall assess the admissibility of the representative action.

The Directive does not force Member States to replace existing procedures and does not prescribe an opt-in or opt-out system, even though this concerns a core issue of collective redress. The divergence of opt-in and opt-out procedures throughout the Union was previously considered highly problematic, and the 2013 Recommendation favoured the opt-in system. It would not have been in line with this recommendation, but politically problematic, to also pursue the opt-in approach in the new Directive, However, qualified entities pursuing a representative action under an opt-in system, where consumers have to opt in to participate in the action, may have an easier time to provide the court with information on the consumers concerned by the representative action.

The effect of the new Directive according to the impact assessment: More enforcement = more compliance?

According to the impact assessment, possibilities for individual redress, administrative enforcement under Regulation 2017/2394 on consumer protection cooperation, national collective redress and redress under Directive 2009/22 on injunctions for the protection of consumers’ interests do not sufficiently address or prevent mass harm, such as Dieselgate. The use of the possibility to pursue injunctions under the Injunctions Directive has been limited, especially when compared with the use that has been made in the Netherlands of collective redress under Article 3:305a Dutch Civil Code (‘Burgerlijk Wetboek’).

Generally, collective redress should overcome barriers to individual redress, such as consumers not knowing their rights, but also the length and costs of judicial proceedings. The Directive should, according to the impact assessment, have a deterrent effect on non-compliant businesses, increase consumer protection, and benefit the functioning of the internal market. The idea that more opportunities for enforcement and higher penalties for breaches of consumer rights lead to more compliance and may even deter businesses from non-compliance however is not based on empirical findings and has even been criticised as ‘outdated’.  

The impact assessment does not compare the likely impact of full rather than minimum harmonisation, nor does it consider the likely impact of an opt-in or opt-out system. Notably, neither the impact assessment, nor the report on collective redress or the fitness check were mentioned in subsequent debate in the European parliament, national parliaments, or the Council.

Further points to boost the likely impact of the Directive

In addition to reforms in cross-border administrative enforcement and private enforcement, the Directive introduces a new possibility to bring actions on behalf of groups of consumers in ‘mass harm’ situations. It replaces the 2009 Directive that did not provide the possibility to claim collective redress. The Directive will be evaluated in June 2028. By that time, the Directive will have been in force for 5 years. Generally, bringing a cross-border representative action may take considerable time: cases for damages arising from defective breast implants, where fraud with the certificate for implants was identified in 2010, are still ongoing. It is therefore quite possible that it is difficult to assess in 2028 how effective the Directive has been. 

The Directive could have been more effective had it addressed opportunities to reduce the length and costs of cross-border adjudication.

• Article 17 EU Representative Action Directive compels Member States to ensure the procedural expediency of claims for injunctive measures – but not for redress measures.
• Furthermore, Article 2(3) of the Directive expressly stipulates that the instrument does not prejudice rules of private international law. That means that designated entities may have trouble bundling claims from consumers from various jurisdictions.
• The Directive also does not address likely problems of parallel proceedings. Article 15 stipulates that decisions following representative actions ‘can be used by all parties as evidence in the context of any other action before their national courts or administrative authorities to seek redress measures against the same trader for the same practice’, but decisions are not necessarily automatically enforceable. In contrast, in individual civil and commercial cases, decisions in the sense of Article 2(a) Regulation 1215/2012 are, as a rule, recognised and enforceable without any declaration of enforceability under Articles 36 and 39 Regulation 1215/2012.
• Lastly, Article 20 stipulates that Member States shall take measures to prevent that the costs of cross-border claims inhibits designated entities from exercising their rights. Member States have considerable discretion in deciding how to do so, and the possibility remains that designated entities will have to pay up-front the costs associated with cross-border adjudication. 

If the evaluation concluded that the Directive has not led to significantly better  enforcement, which in turn should address non-compliance will they to develop rules on jurisdiction, parallel proceedings, enforcement, or costs?  Without such changes, barriers to cross-border collective enforcement are unlikely to be removed.