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After controversial trilogue negotiations, the Council and the EU Parliament formally endorsed the CRD on 4 and 24 November, respectively, and the CRD was published in the Official Journal on 4 December 2020.
Read more in our blog post.
Member States had to implement the CRD into national legislation by 25 December 2022. However, hardly any EU member state transposed the CRD into national law on time. As a result, the EU Commission launched the first stage of infringement proceedings against 24 Member States, sending them letters of formal notice for failure to implement the CRD.
Read more in our blog post.
After the expiry of the implementation period, Member States have six further months, i.e. until 25 June 2023, to ensure that their implementing acts enter into force. If they fail to do so, not only will they risk being taken to the European Court of Justice, but this may also trigger discussions about the direct effect of the CRD.
The CRD requires Member States to ensure that entities can be designated to bring (i) domestic representative actions and/or (ii) cross-border representative actions:
The criteria to designate an entity as qualified to bring domestic representative proceedings are somewhat vague. The CRD merely requires Member States to ensure that the criteria for the qualified entities bringing domestic representative proceedings “are consistent with the objectives in order to make the functioning of such representative actions effective and efficient”. This may potentially lead to situations where domestic representative actions will be available to qualified entities set up on an ad hoc basis or qualified entities satisfying criteria that are looser than those imposed for cross-border representative actions.
For an entity to be designated as a qualified entity for cross-border representative actions, it must comply with all of the following criteria:
1) a legal entity with 12 months of actual public activity in the protection of consumer interests;
2) a statutory purpose demonstrating a legitimate interest in protecting consumer interests;
3) non-profit making;
4) not insolvent;
5) independent and not influenced by persons other than consumers having an economic interest in bringing the action, including in the event of funding by third parties, with procedures in place to prevent such influence and conflict of interests, and
6) public disclosure of information demonstrating compliance with the above and transparency about funding, organisation, management, membership, purpose and activities.
It is expected that consumer organisations in particular should play an active role and should all be considered well-placed to apply for the status of qualified entity. Public bodies could also play an active role by bringing representative actions as provided for in the CRD.
Qualified entities should be fully transparent about the source of funding of their activity in general and regarding the funds supporting a specific action in order to assess whether there may be a conflict of interest and to avoid risks of abusive litigation. If a conflict exists, the court or administrative authority should be empowered to require the qualified entity to refuse the relevant funding and, if necessary, reject standing of the qualified entity in a specific case.
Each Member State must draw up a list of the entities it qualifies to bring cross-border representative actions, which it then communicates to the EU Commission and to the public via electronic databases if it so wishes.
The CRD enshrines mutual recognition of the entities designated for cross-border representative actions. Thus, by appearing on the list drawn up by the EU Commission, an entity is able to prove its standing to bring a cross-border representative action. However, the court before which the action is brought remains free to examine whether the statutory purpose of the qualified entity justifies it taking action in a specific case.
Lastly, qualified entities from different Member States should be able to join forces within a single representative action in a single forum, subject to the private international law rules (which remain unaffected by the CRD).
For Members States already benefitting from a legal framework for representative actions protecting consumers’ interests before the adoption of the CRD, it appears that the eligibility criteria for qualified entities applicable in these Member States often diverge from those set out in the CRD. The Member States concerned thus have to review (sometimes substantially) their existing criteria, at least as regards qualified entities bringing cross-border representative actions.
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Pursuant to Article 2 of the Collective Redress Directive, Member States must ensure that representative actions can be brought against infringements by traders of a wide array of provisions of EU law protecting the interests of consumers (including such provisions as transposed into national law), regardless of whether those consumers are referred to as consumers, travellers, users, customers, retail investors, retail clients, data subjects or something else in these provisions.
The list of such EU law provisions, which thus defines the material scope of the CRD, is found under Annex I to the CRD.
Annex I currently identifies 66 different EU acts. These range from general and transversal consumer legislations, such as Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market and Directive 93/13/EEC on unfair terms in consumer contracts, to selected provisions protective of consumers’ collective interests found in legislations relevant to specific matters/sectors, such as Articles 3-6 of Regulation (EU) 2017/1369 setting a framework for energy labelling and Articles 17-24 and 28-3 of Directive (EU) 2016/97 on insurance distribution.
As a matter of principle, where the acts listed in Annex I contain provisions that do not relate to consumer protection, Annex I is to refer only to the specific provisions that protect consumers’ interests.
The chart below summarizes the subject matters currently found in Annex I to the CRD.
The scope of the CRD reflects recent developments in the field of consumer protection, by taking into account the operation of consumers in an increasingly digitalised marketplace and the increased consumer demand for, in particular, financial and investment services.
This list currently found under Annex I is likely to often evolve over time, as each time that a new EU act that is relevant to the protection of the collective interests of consumers is adopted, the EU legislator will consider whether Annex I should be amended in order to place the new EU act under the scope of the CRD.
An important feature to remember is that Member States remain competent to apply the mechanisms and measures of the CRD to areas additional to those falling within the scope defined in Annex I. In other words, Member States may expand the scope of their national regimes beyond the (minimum) material scope defined by the CRD. This is likely to create uneven protection of consumers, and hence uneven risks for traders, across Member States.
Considering existing pre-CRD national regimes, existing draft national legislations aimed at implementing the CRD, as well as (the few) national instruments already transposing the CRD, it is anticipated that matters such as, for instance, competition law infringements, contractual breaches or bankruptcy law infringements will be covered in some but not all Member States.
Traders are thus strongly encouraged to closely monitor the material scope that will be adopted by the Member States in which they are active, so as to properly anticipate their collective redress risk.
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Measures to be made available by Member States
Procedural mechanisms for injunctive measures and redress measures currently vary across the EU and hence offer different levels of protection for consumers. While some Member States already have both types of measures required by the CRD in place, certain Member States do not have any procedural mechanisms for redress measures in place.
The CRD therefore now requires all Member States to have at least one such effective and efficient procedural mechanism available to consumers for both injunctive measures and injunctive measures.
2. Requirements under the CRD
There are only a limited number of requirements imposed by the CRD on the Member States in respect of the injunctive and redress measures that should benefit consumers.
(i) Injunctive measures
The CRD requires that the following injunctive measures should be available to qualified entities:
(a) Provisional measures where a practice has been deemed to constitute an infringement. For example interim measures, precautionary and preventive measures to:
(i) bring an ongoing practice to an end; or
(ii) prohibit a practice in the event that the practice has not been carried out but where there is a risk that it would cause serious or irreversible harm to consumers; and
(b) Definitive measures to cease a practice or, where appropriate, to prohibit a practice, where that practice has been found to constitute an infringement. For example:
(i) a declaration that a given practice constitutes an infringement, in cases where that practice ceased before the collective action had been brought but where there is still a need to establish that the practice constituted an infringement (e.g. in order to facilitate follow-up actions for redress measures); or
(ii) a measure that takes the form of an obligation a) to publish the decision on the measure in full or in part, in such form as the court considers appropriate, or b) to publish a corrective statement.
Important to note is that the qualified entity bringing a representative action seeking an injunctive measure does not have to prove a) actual loss or damage on the part of the individual consumers affected by the infringement nor b) intent or negligence on the part of the trader.
Infringing traders that do not comply with these injunctive measures are to face penalties, such as conditional fines, periodical payments or penalty payments.
(ii) Redress measures
A redress measure requires a trader to provide the consumers concerned with remedies, which may take various forms (see above). Once a redress measure has been granted, consumers will not need to bring a separate legal action to benefit from such redress measure (although specific steps will typically have to be taken by individual consumers to actually benefit from the remedies, such as making themselves known to the entity in charge of the enforcement of the redress measure).
Redress measures should:
(a) Identify the individual consumers, or at least describe the group of consumers entitled to the remedies provided by those redress measures;
(b) if applicable, state the method of quantification of harm; and
(c) the relevant steps to be taken by consumers and traders to implement the remedies.
The CRD explicitly confirms that consumers cannot receive compensation more than once for the same cause of action against the same trader.
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Opt-in and opt-out under the CRD
Opt-in and opt-out under the CRD
Regulating – for the first time at EU level – representative actions for redress measures, the CRD requires Member States to adopt rules allowing the individual consumers concerned by such an action for redress measures to
express their wish to be represented by the claimant qualified entity and to be bound by the outcome of the representative action. Member States may also decide to provide for a combination of the two mechanisms.
By way of exception, in cross-border cases (i.e. where the consumers affected by the infringement do not habitually reside in the Member State of the court or administrative authority seised), only the opt-in mechanism shall be provided for: these consumers must explicitly express their wish to be represented in the representative action in order for those consumers to be bound by the outcome of that action.
EU institutions’ positions
In 2012, the European Parliament observed that “the European approach to collective redress must be founded on the opt-in principle, whereby victims are clearly identified and take part in the procedure only if they have expressly indicated their wish to do so, in order to avoid potential abuses”. This conclusion was based on the fact that, in the Parliament’s view, an opt-out-based “collective redress system where the victims are not identified before the judgment is delivered must be rejected on the grounds that it is contrary to many Member States’ legal orders and violates the rights of any victims who might participate in the procedure unknowingly and yet be bound by the court’s decision” (see European Parliament resolution of 2 February 2012, para. 20).
Since then, legal communities in several Member States have clarified that an opt-out mechanism is not contrary to their legal orders, and a number of significant differences in approach between Member States have emerged. This gave rise to a fruitful debate between those in favour of an opt-out to ensure the widest possible access to representative actions and an efficient solution for dealing with widespread and dispersed damage, and those who, conversely, consider such opt-out system excessively burdensome for respondent companies, partly incompatible with the “loser pays” principle, and still potentially contrary to their legal order.
With the CRD, the EU legislator has moved away from the rigid no-opt-out position expressed by the European Parliament in 2012, but has not taken a firm position on this point, allowing Member States to choose between opt-in and/or opt-out to best respond to their legal traditions (save, as seen above, for consumers not resident in the Member State in which the action was brought, for whom an opt-in must apply).
Overview of choices currently made by Member States (April 2023)
In implementing the CRD, a number of Member States have adopted (or seem to have decided to adopt) the approach already followed under their existing collective redress regime. These include the Netherlands (which kept their opt-out based mechanism with only minor adjustments), Italy (which mirrored the generalised opt-in mechanism applicable to its existing class actions), and Sweden (whose local opt-in-based law is considered to be largely in line with the requirements of the CRD).
Among the Member States that had to develop a (more) comprehensive representative action regime to implement the CRD, some have chosen an opt-in system, including Germany (the current draft bill requiring a minimum number of consumers to opt-in), France (the current draft bill creating a general opt-in regime), and Poland.
In contrast, the Spanish draft bill envisages a general opt-out rule (the mechanism currently in place under Spanish law) but, in specific circumstances, Spanish courts will be able to admit collective actions brought on an opt-in basis, if considered more efficient.
Finally, significant changes are expected to be introduced in Luxembourg, where the court will now decide whether the opt-in or opt-out principle applies, and in Belgium, where rumours indicate that the draft law will impose a generalised opt-out system (with limited exceptions), as opposed to the current system which allows to choose between opt-out and opt-in.
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Watch this space for information on other key features of the CRD (e.g., settlements, funding) and on our practical thoughts regarding the challenges posed by the CRD.
Senior Managing Associate, Luxembourg
Junior Associate, Belgium
Associate, The Netherlands
Managing Associate, Italy