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Collective redress is a procedural mechanism that allows for reasons of procedural economy and efficiency of enforcement many similar legal claims to be combined into a single court action. Consumers and investors encounter problems with the enforcement of their rights through the individual redress, especially in times of the financial crisis. If a substantial number of harmed individuals decide not to pursue their, usually low, claims, the unduly gained profits of the opposite party can be extremely high. Thus, collective redress mechanisms can represent better option for consumers and investors, as their claims tend to be much less burdensome in case of the collective action. However, such mechanisms can trigger the abuse of the procedures, with the most commonly quoted threat being the example of American regulation of class actions. Negative characteristics of American model are the reasons that EU decided to shape its own concept of collective redress mechanisms. The binding act in this field in the EU is directive on injunctions for the protection of consumers’ interests; however, there is no binding act yet regarding compensatory actions. In June 2013, the European Commission published the Recommendation on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union Law. It is not binding on Member States, however, it can serve as a guideline to improve their existing legislations, especially the regulation of collective compensatory actions. In so doing, consumers and investors might be given the possibility to use more efficient mechanism to compensate the harm suffered.

In recent years, the European Commission and various Member States, citing increasingly integrated markets and higher levels of cross-border activity within the European Union (“E.U.”), have called for the adoption of effective collective redress mechanisms for victims of violations of E.U. law. Although many Member States have already adopted collective action procedures under national law, these procedures have been ineffective in stimulating private enforcement of E.U. law and are often divergent in their approach to consolidating claims. E.U. lawmakers, after a lengthy period of investigation and study, have identified a set of guiding principles for the Member States to use in enacting new collective redress procedures within their national systems. The studies and papers solicited from the public during the Commission’s deliberations are explicit in their rejection of the U.S.-style opt-out class action mechanism. In their effort to avoid similarly calamitous results, European lawmakers propose that Member States adopt “opt-in” class actions, while rejecting many of the economic incentives that some believe lead to filing nonmeritorious claims, such as punitive damages and contingency fee arrangements. The European proposal is unlikely in the authors’ view to stimulate private enforcement of European law or increase victims’ access to compensation, given the flaws inherent in the opt-in class action device. Instead of looking to adopt a “U.S.-lite” approach to victim redress which is fundamentally incompatible with many judicial systems within the E.U., the authors propose that Europeans consider adopting a regulatory administered compensation system, modeled after such U.S. examples as the Securities and Exchange Commission Fair Funds and the September 11th Victim Compensation Fund. The authors also propose that regulatory administered funds can provide more effective and efficient restitution to victims than traditional litigation.