EU flag and gavel

Susan Moore, Teresa Griffin and Sandra Grannum of law firm Faegre Drinker share what early action financial services firms can take to avoid litigation.

The EU’s Collective Redress Directive represents part of a ‘new deal for consumers’, prepared partly in response to high-profile cases involving mass harm or breaches of consumer rights in multiple EU states.

This legislation will facilitate litigation in Europe akin to class actions, and so it is key for businesses to understand the post-Directive landscape. Financial services organisations are no exception and must appreciate the impact of the Directive,  consider their readiness and plan how to mitigate risks.

The Directive is designed to harmonise enforcement of consumer protection laws throughout Europe, safeguard consumer interests and protect against abusive lawsuits. Essentially, it strives to ensure that all consumers in Europe have access to representative actions.

By December 25, 2022, member states were required to translate it into national law. That has happened to an extent, although the process remains ongoing in some member states. By June 2023, member states must have at least one procedural mechanism in place that meets minimum standards.

In essence, the Directive permits qualified entities to seek a range of remedies on behalf of consumers, including redress, repair, replacement, price reduction, contract termination and/or injunctive relief.

Importantly, it requires the development of procedural mechanisms to facilitate claims; it does not create new causes of action. 

While some member states already had representative action mechanisms in place, the Directive seeks to ensure all consumers in Europe have access to representative actions. In other words, it provides a procedural springboard for class action-type litigation.

several US plaintiff law firms have recently expanded into Europe, seeing it as an ‘emerging market’ for class action litigation

Class action litigation is, of course, nothing new in certain jurisdictions, with it being most prevalent in the US. Since a legislative development in 1995, there has been an explosion of the so-called ‘plaintiffs’ bar’ in the US. Class actions have facilitated this and can represent a serious risk to certain businesses. 

There are numerous examples of class actions against internationally known names, with suits in just the past month or so targeting Barclay PLC, Credit Suisse Group AG, DISH, GWG Holdings, Rite Aid, Signature Bank, Stanley Blacken Decker, SVB Financial Group, Target and Tupperware, among others. 

One might ask whether the Directive represents a major shift from the previous status quo. Indeed, there is anecdotal data that suggest it is expected to do so. 

Perhaps an indication of the anticipated sea change in litigation activity is the fact that several US plaintiff law firms have recently expanded into Europe, seeing it as an ‘emerging market’ for class action litigation. That the Directive permits litigation to be funded by third parties is likely to encourage this further.

What types of claims fall within the Directive?

Many organisations in the financial services sector will unquestionably be impacted by the Directive. Representative lawsuits on behalf of consumers can be brought for any breach of a list of 66 EU laws listed in the Directive, which are relevant to financial services, general consumer law and data privacy, among others.

Who sues, and who might be sued?

Only a qualified entity can bring a suit, which is any organisation or public body representing consumers’ interests designated by a member state as qualified to bring representative actions. Different member states may have different types of qualifying entities.

The Directive provides for representative actions to be brought against traders. The definition of this term is very wide, extending to natural and legal persons, privately and publicly owned, who are carrying on a trade, business, craft or profession. This very wide scope might be refined as the jurisprudence develops.

And where?

Each member state has the discretion to implement the Directive into their domestic regime as they see fit, and therefore there could be up to 27 varieties of class action procedures heralded by this change. One can easily see the scope this may facilitate for forum shopping, as advantageous regimes are sought out.

England and Wales do not currently have an equivalent regime, though there is scope for multiple claims to be managed together, and class actions have become common in relation to certain types of claim, including in respect of financial services, data privacy and data breaches. Although the UK is not required to implement the Directive, further developments are expected. 

Early risk assessment and mitigation

The kinds of class actions and mass torts ongoing in the US may suggest where qualified entities might first identify potential claims in Europe against traders in the financial sector, such as for inflating performance, failure to disclose risk, data breach, misrepresented business operations and compliance policies, selling unregistered stocks and engaging in a Ponzi scheme. 

The starting point for an organisation’s risk analysis will be to consider the Directive’s applicability to its own business. There may also be a regulatory overlay to consider in the context of the banking and finance industry. The Directive might also require consideration in the context of an organisation’s operational resilience: how vulnerable are critical counterparties?

Undoubtedly, learnings from the defence of class actions in the US are likely to be highly valuable in formulating strategies. Furthermore, claimants represented by firms affiliated with the US plaintiffs’ bar will litigate in a coordinated fashion. 

There are steps that one can draw on from experience in the US to manage risk and take preparatory steps, which includes an analysis of current contractual relationships, jurisdictional analysis, systems for timely and accurate regulatory disclosures, press releases and other public statements, and an assessment of whether changes should be made.  

In addition, there are various reorganisation tools that can successfully be used to avoid class action litigation or resolve mass claims.

For example, there is a growing body of class action cases, particularly in the financial services sector, where a reorganisation tool has been utilised to impose universal claims admission quantification procedures and facilitate payments to consumers, thus reducing costs and management time.

Similarly, there are well-developed techniques for reorganising companies through structural optimisations of corporate groups which can contain or ameliorate the potential large-scale contingent liabilities presented by class actions and achieve better long-term outcomes for traders as well as claimants. 

The applicability and flexibility of these tools needs to be considered on a case-by-case basis, but creative solutions can often be found. 

Whatever solution is optimal, early engagement and planning will nearly always be crucial to maximising a firm’s options.


Susan Moore, Teresa Griffin and Sandra Grannum are all partners at international law firm Faegre Drinker Biddle & Reath LLP.


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter