Protecting consumers against fraud

The Diet on Dec. 4 enacted a law that sets the procedure for class-action lawsuits aimed at helping consumers who have suffered financial damage from unscrupulous sales methods receive compensation from firms that caused the damage. Under the law, a qualified consumer organization will file a damages lawsuit on behalf of consumers.

The government and other organizations concerned should make sufficient preparations so that consumers will be fully informed about the new law and can easily utilize it. The law is expected to take effect in about three years.

In 2006, a system for lawsuits by consumers was first introduced that allowed consumers to file class-action lawsuits for cessation of such practices as unjust solicitation by firms through the provision of false information about their products and contracts that include a clause that requires the payment of an exorbitant financial penalty for breach of contract.

Revisions in 2008 to the law on transaction agreements for specified commodities and to the law against unjustifiable premiums and misleading representations expanded the scope of consumer lawsuits to cover cessation of false or extravagant advertisements and of displays that lead consumers to believe that the products are of higher quality than they really are.

Behind the revisions was an increase in the number of consumers who became the victims of pernicious business practices. But even with the revisions, consumers were only able to seek the cessation of certain types of practices. The system was such that consumers had to file lawsuits and seek remedies on an individual basis.

In 2012, the Consumer Affairs Agency started collecting opinions from the public concerning a new system for class-action lawsuits on behalf of consumers. The new law has introduced a lawsuit procedure for consumers who seek compensation from firms that have caused them financial damage.

Under the new system, a qualified consumer organization files a lawsuit with a court asking it to recognize that a certain firm or firms have inflicted financial damage on consumers through illegal business practices. At this point, individual consumers do not join the lawsuit. If the consumer organization wins the lawsuit, it obtains a list of customers prepared by the defendant firm or firms that employed the illegal practice and other means of identification, contacts individual consumers, and calls on them to provide the organization with information on concrete claims.

The consumer organization then presents a list of claims to the court, which subsequently determines the amount of compensation to be awarded to each consumer.

In this type of class-action lawsuit, courts are supposed to ask business firms to approve or disapprove facts of the cases. Parties concerned should carefully monitor such procedures in order to prevent courts from unjustly limiting the scope of business practices and firms that caused financial damage to consumers. It will also be important for the Consumer Affairs Agency to write a reasonable guideline to prevent consumer organizations from filing lawsuits for the sake of getting rewards from consumers.

At present, about 10 consumer organizations qualify to file class-action lawsuits, including the Consumer Organization of Japan.

As of January 2013, some 30 consumer lawsuits had been filed. But consumer organizations do not have enough funds and experts to file and continue class-action lawsuits.

Parties concerned should make efforts to improve the financial conditions of these organizations so that consumers can easily rely on them to uphold their rights using the legal means that have now become available.