Daksha Mistry considers new European Union guidelines
for alternative dispute resolution
and online dispute resolution, and their implications for the motor
Will new EU guidelines take consumer disputes out of court?
Anyone in the motor finance industry that has been involved with
litigation involving a consumer dispute knows that it can be a long
and sometimes expensive process. Now, new EU proposals should help
parties involved with such cases settle them in a cheaper and
easier way, out of court.
The EU has adopted proposals for
new alternative dispute resolution (ADR) and online dispute
resolution (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, which will be able to provide them with the necessary
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.
In the UK,
the number of motor finance litigation cases has been increasing –
and many 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. A full analysis was conducted by the European Commission
into ADR entities and how they function in all member states in the
European Union. It found that companies and consumers were both
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 a result of
this research and are designed to improve the process, encouraging
parties involved with consumer disputes to consider settling their
cases through ADR or ODR, rather than jumping straight into the
litigation process in court.
The new proposals are expected to
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 courtroom. 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
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 Finance & Leasing
Association has commented on the fact that the Lending Code already
conforms to the principles of the directive and proposal, and that
it will be working closely with BIS and the OFT to ensure sensible
implementation insofar as it applies to lending and finance
Daksha Mistry is director,
corporate banking & asset finance, at law firm DWF