With the so-called directive on Representative Actions or Collective Redress, the European legislator has established a framework to introduce a new collective action instrument across the EU. Currently, there is widespread consensus that both the directive at the European level and its German implementation in the form of the Verbraucherrechtedurchsetzungsgesetz (VDUG) require significant improvements.

This primarily concerns the low thresholds (for example, missing minimum registration duration in the list of qualified consumer associations and an excessively low consumer quorum). Furthermore, the scope of the collective redress action should not be extended to additional EU legal acts. Instead, the current catalogue needs to be reviewed to determine to what extent its scope should be limited to clear legal positions, as legal uncertainty must not be at the expense of obligated companies, undermining Europe's competitiveness in the global market. Companies reject collective actions for the enforcement of the GDPR or related non-material damage claims as prone to misuse.

From the perspective of the majority of the business community, the option of employing a legal funder must be categorically ruled out for collective lawsuits. This is because in such scenarios, even if the collective lawsuit is successful, those affected are not awarded full compensation. A significant proportion of their damages (20 to 50%) would be transferred to the legal funder. The high return expectations of legal funders are not part of the damages to be compensated within collective lawsuits and must not be at the expense of those affected.

Moreover, third-party financing that involves profit interests bears a high potential for abuse, which cannot be counteracted solely by transparency regulations. In particular, the combination of collective lawsuits and legal funding paves the way for strategic actions designed to force companies into negotiations despite lawful behaviour, compel changes in business conduct or financially harm them due to the necessity of defending against such claims. In Germany, companies—especially those in innovative sectors—are increasingly held liable for lawful actions (e.g., through the 11th GWB Amendment), placing disproportionate burdens on entrepreneurial activity. Similarly, the risks of civil liability under the EU Supply Chain Directive are concerning.

The focus must be on creating a balanced alignment of interests between consumer interests and the legitimate economic interests of businesses. Consumer interests have already been given considerable weight by the introduction of far-reaching collective redress powers. However, justice (and receiving justice) should not become an investment object. 

EU regulations on litigation financing should aim to ensure that equality of opportunity in litigation emerges in the area of collective actions. This requires at least the transparency of agreements with litigation financiers for all parties to the litigation, and third parties must not gain any influence over the litigation. A judicial approval of third-party financing upon, including a substantive review regarding immorality, would be desirable.

In configurations outside class actions, the instrument of litigation financing can represent a sensible complement to existing legal aid possibilities. This applies to individual consumer claims, but especially in the entrepreneurial realm: For instance, SMEs can preserve their liquidity accordingly. In this regard, it is crucial to consider that litigation financing is a financial product, not an element of effective legal protection. Consequently, the authorisation and market behaviour of litigation financiers should be placed under government oversight, integrated within the model of financial market supervision or at least modelled after it in essential aspects.

Even in practical applications, transparency is necessary to prevent abusive effects: Anyone engaging the services of a litigation financier in legal disputes should be required to fully disclose the financing agreement to all involved parties. This agreement should specify, apart from the identity of the financier, the precise possibilities of influence in the proceedings, the origin of funds, and whether a relationship exists between the financier and the accused company, whether in the form of a business connection or a competitive situation. In this way, it can be avoided that these claims are used without cost-risk for other purposes, for instance, to gain business and production secrets that might hold greater value than a potentially lost lawsuit. Such scenarios are likely at present due to a lack of regulations and the introduction of new elements in substantive law resembling US-style disclosure (especially in the Product Liability Directive).