Tuesday, July 18, 2006

Class Actions for Consumers

The Department of Trade and Industry has published a consultation document on representative actions in consumer protection legislation. The idea is quite simple: many consumers when faced with shoddy goods or services are left with going to court as their solution. They find it costly and daunting. Even the Small Claims Court is bureaucratic and not very user-friendly. Most people, if in their right minds, avoid the law. Often, however, a large number of people are injured by a single business or supplier.

The solution says the DTI is to allow groups like consumer bodies to bring a case on behalf of a named class of injured individuals. One could imagine "Which?" bringing a case on behalf of a 100 people who had received consistently poor service from an internet service provider, or people who have been defrauded in a lottery scam. Each individual might find the prospect of going to the Small Claims Court (even the online version) confusing and too formalistic. A class action releases the individual from the tension of having to be one's own lawyer in a legalistic world of small print and wily exemption clauses.

Of course, as the consultation paper clearly says there are many problems with defining classes, approving the right groups, and so on. These are not insurmountable, and definitely lawyers should be looking into this as a market opportunity.

According to the Financial Times today both the Institute of Directors and the British Retail Consortium oppose this move. Their complaints include "it's another step towards an increasingly litigious society" and that, while class actions might be useful in the US where there are no small claims' courts, there is no need in the UK because such courts exist. The actual words of the BRC were: "US consumers don't have recourse to small claims courts, which is why they have class actions."

If this is the level of informed debate by business represetative bodies, then their members should reconsider the value of paying subscriptions because they're not getting value. First, it isn't an increasingly litigious society: figures tend to show that trials are declining. Secondly, we are more aware of our rights (and rightly so) and are prepared to exercise them (and rightly so). Thirdly, far more of our relationships with suppliers are arms-length, especially as more trade is conducted over the internet. Face to face relationships are rarer than they used to be. If therefore we become a society of "strangers" then protections are necessary.

Fourthly, I'm afraid the British Retail Consortium got it wrong--there are small claims' courts in the US. Here is an example of one in the state of Virginia, which has jurisdiction up to $2,000.

Business will have to get used to the idea of being accountable for its actions, something it has tried to avoid in the UK for too long. This is a step in the right direction.

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