Will new EU Guidelines take disputes out of court?

Date: 02/02/12

Changing times

The EU has adopted proposals for new ADR and ODR directives and regulations for disputes involving consumers. The new ADR guidelines build on the existing ADR framework and cover mediation procedures, conciliation procedures and procedures before complaint boards. Included in the proposals are requirements for consumers to have access to a qualified mediator and for the process to take no longer than 90 days.

Under the ODR proposals, the EU has laid out plans to create an EU-wide platform, enabling consumer disputes to take place online, through a user-friendly, interactive website, which will be accessible in all languages with a common set of rules applied. As part of the process, consumers will be able to complete and submit an electronic complainant form to an ADR entity who will be able to provide them with the necessary support.

These ADR entities will be monitored by national authorities, which will be set up by the EU to ensure that certain quality standards are being met during the ODR process. The new guidelines also require all cases to be resolved within 30 days.

Why now?

In the UK, the number of motor finance litigation cases has been increasing – many of which could have been settled out of court, saving both parties time, money and hassle.

Although ADR was already one of the most cost effective ways to deal with disputes out of court, research into the process highlighted a number of weaknesses in the system. The full analysis, which was conducted by the European Commission of ADR entities and their functioning in all member states in the European Union, found that both companies and consumers were generally unaware of the process or how it worked. There was also concern around the quality of the proceedings and many were not being carried out at a satisfactory level.

The new proposals are as a result of this research and it is hoped that improving the process will encourage parties involved with consumer disputes to consider settling their cases through ADR or ODR, rather than jump straight into the litigation process in court.

Room for improvement

It is expected that the new proposals will be implemented at some point over the next two to five years. However, before they are enforced, there are some issues that need to be considered.

For example, as the ODR process takes place online, it has the added benefit of eliminating any bias based on age, gender, race or disability that could creep into the court room. However, this also makes it harder to read people’s emotions and motives through their body language, facial expression or tone of voice. Another issue with ODR is that it requires a certain level of literacy skills for people involved, which means it might not always be a suitable solution.

While ADR can reportedly be used for any contractual disputes, there are some cases that it can’t be used for. If a motor finance company looks after its own consumer complaint system, for example, then it wouldn’t be able to settle a consumer dispute case through the ADR process.

What’s more, when dealing with cases out of court, there isn’t the benefit of having the judge’s knowledge or a system of legal expertise in place. There also isn’t any guarantee that a settlement will be reached within the required 30 or 90 day period. In these cases, the parties would then have to take the case to court, which would add further delay and costs to all involved.

A brighter future

Even though there is still some work that needs to be done on the proposals, it seems fairly certain that the new ADR and ODR guidelines will be implemented in the not so distant future. When they are brought in, it will be interesting to see how National Authorities across the EU monitor and measure the quality of proceedings, as such criteria will be difficult to evaluate.

Overall, the new proposals should be welcome news to the motor finance industry as it will give companies the chance to avoid lengthy and costly litigation processes when settling consumer disputes.

The FLA have commented on the fact that the Lending Code already conforms to the principles of the Directive and Proposal, and will be working closely with BIS and the OFT to ensure sensible implementation insofar as it applies to lending and finance Agreements.

This article has been written by Daksha Mistry, Director in Asset and Consumer Finance who can be contacted on 0121 572 8506 or daksha.mistry@dwf.co.uk.