Ferma calls for balance in EC’s collective redress plans

Ferma is considering the implications of the EC’s plans to introduce collective redress across the EU and higher penalties for companies that breach consumer law, before making its next move. But the federation has already reiterated its stance against punitive damages and reconfirmed its belief that out-of-court settlements are preferable for business and consumers, while reminding the commission of the need to maintain balance between offence and harm when setting new rules. In its New Deal for Consumers package announced last week, the EC put forward plans to introduce pan-European Union collective redress and penalties of up to 4% of annual turnover for organisations that fall foul of consumer law. The EC wants the new rules to hit the statute book by May of next year, to get the measures through before the next European elections. Both Insurance Europe, the insurance industry body, and BusinessEurope, which represents European business associations, have come out against the EC’s proposals to introduce collective redress across the EU because they believe they do not safeguard against abuse and could add unfair costs to their members. They are concerned that the system put forward by the EC last week fails to follow its own recommendations on collective redress published in 2013, which in part aimed to avoid US-style class actions. The EC has dropped the loser-pays principle and the need for consumers to opt in to collective actions, which were seen by many as key safeguards in the 2013 text, from last week’s New Deal for Consumers proposals. Ferma has not publicly joined the criticism but will no doubt share many of the same concerns. It will be keeping a close eye on proceedings before deciding how best to lobby on behalf of its risk and insurance management members. It is worth remembering that back in 2013, Ferma welcomed the commission’s recommendation on collective redress but argued against the introduction of US-style class action legislation on the basis that it would introduce complex, lengthy and costly procedures. Ferma CEO, Typhaine Beaupérin, told CRE this week that Ferma is considering the latest EC texts and will comment to the commission on the risk management issues involved. Ms Beaupérin also said Ferma’s view remains that out-of-court negotiated settlements are best for both consumers and companies. “Litigation should be a last resort,” she stressed. This suggests the federation would not be enamoured with any collective redress system that disincentivises such action. Hinting that the measures put forward by the EC for collective redress and heavy fines run the risk of unfairly punishing companies that fall foul of consumer law, the Ferma CEO said the federation “will remind the commission of the importance of proportionality between the nature of the offence and the harm caused”. On specific measures within the EC’s text, Ms Beaupérin explained that Ferma believes punitive damages should not be allowed under any collective redress system “in order to limit the impact on the liability insurance market”. The EC was keen to stress when announcing the package that punitive damages will be excluded. But its proposed directive on representative actions for the protection of the collective interests of consumers only states that punitive damages “should be avoided”. One source told Commercial Risk Europe that this wording is worryingly weak and would not necessarily see punitive damages banned outright. He said this article of the directive needs to be strengthened and it seems likely that Ferma shares this view. Ferma has always spoken in favour of the loser-pays principle to be enshrined within any EU collective redress system, to safeguard against abusive litigation. It is safe to assume therefore that the federation will be concerned to see this requirement missing from the EC proposals last week, especially as it was one of the safeguards put forward by the commission itself in 2013.

Ferma calls for balance in EC’s collective redress plans

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