German Consumers The Need for a Class Action Law

VW's diesel emissions scandal shows Germany needs to strengthen the rights of consumers, but it should not allow the excesses of the U.S.-style class actions, writes a Handelsblatt investigative reporter.
It should be easier for German consumers to collectively sue companies, the author argues.

It is absurd: So far, the Volkswagen concern has had to cough up around $22 billion (€20.75 billion) in compensation to customers and authorities in the United States for its diesel fraud. This enormous sum comprises damage payments, penalties and legal costs. The number of affected cars in the United States is 585,000.

In Europe Volkswagen potentially has a problem 17 times bigger: The company sold 8.5 million vehicles here with the now-suspect diesel technology. But the sum Volkswagen has had to stump up for its transgressions in Europe is infinitely lower: zero.

The facts are completely at odds with any sense of justice. In the United States, the carmaker pleaded guilty to deceiving supervisory authorities and customers, whereas in Europe it denies all such accusations. VW may even succeed with this plea. The law in Germany and other European countries makes such stonewalling possible. Consumers haven't yet been able to demand damages.

Through the back door, U.S. law specialists are being increasingly successful in assembling large numbers of plaintiffs and bringing pressure to bear on possible infringing parties.

There are two reasons for this: On the one hand, the customer has to hope that the courts regard the manipulation software as a serious defect. That is not certain, as there are differing signals in terms of jurisprudence.

On the other hand, every individual VW customer has to pursue his own arduous path to justice because in Germany, there's no such thing as a class-action suit like in the United States. Damaged parties have no way of exerting pressure on Volkswagen.

U.S. law firms in particular are exploiting this gap in German law. Possible cases of fraud at the expense of consumers, investors or firms are attracting increasing numbers of litigation firms from abroad. These specialists search systematically in Germany for potential class-action suits, which are actually not possible here, unlike in the United States. But through the back door, they are being increasingly successful in assembling large numbers of plaintiffs and bringing pressure to bear on possible infringing parties.

The U.S. law firm Hausfeld, in particular, hit the headlines recently. It is attacking carmakers like VW because of the diesel scandal, or automotive supplier firms like Bosch, not to mention truck cartel members Daimler, Volvo, Iveco and DAF. Recently it has focused on the banking industry for possibly charging excessive EC bank card fees.

Germany needs a law pertaining to collective rights, but it should not become an El Dorado for U.S. law firms.

The lawyers are applying their tried and tested U.S. success formula in Europe too: The first step is to acquire huge numbers of clients via internet platforms like Myright and generate widespread publicity. Potential damages are provisionally estimated at exorbitant levels. That creates headlines and gets the attention of politicians. Being on the side of damaged parties makes the lawyers popular. This helps them to exert maximum pressure on the firms concerned.

There are already calls to introduce U.S.-style class actions in Germany. But that would be wrong, because things have got out of hand in America. A whole plaintiff industry has been established in which the interests of clients have become less and less important. What comes first and foremost is the law firms' own business.

The U.S. law has all the instruments of torture available to plaintiffs and their lawyers at the ready, but under no circumstances should Germany import them. For example, companies in the United States are threatened with high damages, and amounts are determined by juries of laymen and can hardly be calculated.

Legal fees are not reimbursed even if it transpires that a claim is unjustified. The usual payments made to plaintiff lawyers in the United States are frequently out of all proportion. Success-based fees usually amount to a third of the damages secured. In the case of VW, the law firms involved literally pocketed billions. A large proportion of awarded damages go not to damaged parties, but to their lawyers.

However, it is also important in Germany to strengthen consumers' rights which is why Minister of Justice Heiko Maas of the center-left Social Democratic Party (SPD) has introduced a draft bill for class actions brought by consumers. So far it has only been possible for investors to get together and represent their interests in court. This right should also be accorded to customers mounting a collective defense against fraudulent firms. The judicial system - itself under great pressure - would also benefit if such actions could be bundled and streamlined.

But there have to be improvements and so far it has been associations such as consumer protection organizations which have had to take the initiative. Individuals affected can also join a case but cannot initiate it. There is no logical reason for this, and the next government should make it a priority to amend this. Germany needs a law pertaining to collective rights, but it should not become an El Dorado for U.S. law firms.


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