Sellers watch out – EU approves new rules for consumer class actions

After several months of negotiations, the European Parliament and Council have agreed a new directive on collective actions by EU consumers. The Representative Action Directive is a part of the EU’s New Deal for Consumers programme, with the aim of improving and modernising consumer protection in the EU.  It repeals and replaces the current Injunctions Directive.

The new Representative Action Directive introduces a harmonised model for representative action in all member states and is billed as a “European way” of facilitating US-style class actions.

The aim of the legislation is to ensure that consumers are well protected against mass harm, while at the same time providing appropriate safeguards from abusive lawsuits. The new law also aims to make the internal market function better by improving tools to stop illegal practices and facilitating access to justice for consumers.

A so-called “qualified entity” will be able to take action for collective redress.

According to the European Parliament’s press release, the key points of the agreed Directive are:

• At least one representative action procedure for injunction and redress measures should be available to consumers in every member state, allowing representative action at national and EU level.

• Qualified entities (organisations or a public body such as, in Ireland, the Competition & Consumer Protection Commission) will be empowered and financially supported to launch actions for injunction and redress on behalf of groups of consumers to facilitate consumers’ access to justice.

• The rules on designating qualified entities distinguish between cross-border cases and domestic ones. For cross-border cases, entities must comply with a set of harmonised criteria. They have to demonstrate 12 months of activity in protecting consumers’ interests before their request to be appointed as a qualified entity will be allowed, they must have a non-profit character and ensure they are independent from third parties whose economic interests oppose the consumer interest.

• For domestic actions, member states must set out proper criteria consistent with the objectives of the directive, which could be the same as those set out for cross-border actions.

• The rules aim to strike a balance between access to justice and protecting businesses from abusive lawsuits through a “loser pays principle”, which ensures that the defeated party pays the costs of the proceedings of the successful party – this acts as a disincentive to claims without merit but could also make claims more expensive for losing companies.

• To further avoid abusive lawsuits, courts or administrative authorities may decide to dismiss manifestly unfounded cases at the earliest possible stage of the proceedings in accordance with national law – how this works will be left to member states.

• The European Commission should assess whether to establish a European Ombudsman for collective redress to deal with cross-border representative actions at EU level.

• The scope of collective action would include trader violations in areas such as data protection, financial services, travel and tourism, energy, telecommunications, environment and health, as well as air and train passenger rights, in addition to general consumer law.

What happens next?

Parliament as a whole and the Council will now have to approve the political agreement. The directive will enter into force 20 days following its publication in the Official Journal of the EU. Member states will then have 24 months to transpose the directive into their national laws, and an additional six months to apply it.  Therefore, new claims will begin from 2022.

The new rules are relevant for Irish consumers as well as those supplying goods and services or consumers in Ireland.

For our UK readers, while the UK may choose not to transpose the directive or create its own system, UK traders should be aware of the new rules when supplying to consumers in the EEA.