20171221

COLLECTIVE COMPENSATORY REDRESSTHROUGH CONSUMER PROTECTION
AUTHORITIESTakehisa Nakagawa
Professor of Law, Kobe University
December 21, 20171

1. CONSUMER PROTECTION AGENCIES The Consumer Affairs Agency (CAA) was established in 2009(1) the nation’s first “headquarters” of consumer protection in Japan(It also drafts legislative proposals for the Cabinet.)(2) comprehensive enforcement authorities over basically all consumer problems with small exceptions.
1. consumer safety (Consumer Safety Act, etc.)
2. fair representations (Act against Misleading Representations, Food Labelling Act, etc.)
3. fair consumer transactions in terms of solicitation & contents (Consumer Contracts Act & Act on
Specified Commercial Transactions both which prohibit fraudulent and deceptive practices)
Most of the CAA’s authorities were exercised by other agencies before 2009.
 Exceptions: Other agencies such as Financial Services Agency have law enforcement powers in each area.
The Act on Specified Commercial Transactions provides for concurrent enforcement jurisdictions of CAAand other Ministers.
21

20171221

2. POLICY ISSUES– COLLECTIVE COMPENSATION In 2009, Diet wanted the CAA to work on “consumer redress by way of compensation”
Supplementary article 6 to the Act Establishing the CAA provides: “[w]ithin approximately three years after this Act
and the other two CAA‐related statutes come into force, the Government shall examine schemes for depriving theperson or entity who has caused injuries to a large number of consumers of their unjustified profits for thepurpose of redress of victims, including schemes to prevent the wrongdoers’ property from concealment anddissipation; and shall take necessary measures based upon those results.”

The CAA started research for drafting new laws.
 Background: traditional private lawsuits do not function well because‐‐‐ victimized consumers simply do know (or do not want to admit) they have been deceived‐‐‐ each victim’s loss is oftentimes not significant enough to take action‐‐‐ difficult to sue “bad guys” (predatory operators) , their whereabouts are unknown
Unjustifiable profits being accumulated in businesses & less incentive for compliance3

3. OECD REPORT (2007)
According to the 2007 OECD report entitled “Recommendation on Consumer Dispute Resolution and Redress” which
advises Member states about effective enforcement mechanisms against fraudulent and deceptive commercial
practices:
 Definition of “Redress” : compensation for economic harm in the form of either a monetary remedy (e.g., a
voluntary payment, damages, restitution, or other monetary relief) or a conduct remedy with a restorativeelement (e.g., exchange of defective goods or services, specific performance or rescission of contracts).
 Proposals of the report include:
A. dispute resolution and redress mechanisms for consumers acting individuallyB. dispute resolution and redress mechanisms for consumers acting collectively‐‐‐ E.g., collective lawsuits (opt‐in/opt‐out), lawsuits filed by consumer organizations
C. mechanisms for consumer protection enforcement authorities to obtain or facilitate redress on behalf ofconsumers‐‐‐‐ E.g., enforcement authorities to seek a court order for redress in civil/criminal proceedings,
enforcement authorities act as a representative arty in lawsuits seeking redress
42

20171221

4. THEORETICAL POSSIBILITIES
If harms (due to a violation of a law) occur, the following options can follow, theoretically:Harm‐Preventive measures (prospective)

Harm‐Compensatory measures (retroactive)

ADR mechanisms

ADR mechanisms

Court proceedings (lawsuits) for enjoining illegal acts or
mandating specific performance

Court proceedings (lawsuits) for damages/restitution

by victims (individually/collectively)by special organizations
by the government (as enforcer/ representative)
Agency proceedings (ad. procedure) for orderingcease & desist/engage in corrective action or
improvement/pay money penalty/confiscation

by victims (individually/ collectively)by special organizations
by the government (as enforcer/representative)
Agency proceedings (ad. procedure) for ordering
restoration/exchange of defective products (recall)/performance of contractual obligations

Some are both preventive and compensatory

payback / undo (renegotiate) contracts?
confiscated money to be distributed?
5

5. CURRENT STATUTORY SCHEMES (COURT PROC.)(1) For preventive relief
Since 2006 the Consumer Contracts Act has authorized “Qualified Consumer Organizations (QOC’s)” to filelawsuits enjoining traders from engaging in prohibited acts. Similar provisions are now found in the Act against
Misleading Representations (enjoining false and misleading representations and advertisements),the Act on
Specified Commercial Transactions, and the Food Labeling Act.
(2) For compensatory relief
In 2013 a “collective consumer lawsuit” was introduced which is to be filed only by “Specific Qualified
Consumer Organizations (SQOC’s)” on behalf of a large number of victimized consumers. This is forconventional damages (with no punitive damages) or conventional restitution of unjust enrichment (nodisgorgement) in relation to consumer transactions or torts (on and after Oct. 1, 2016). US‐style class action
was avoided in every sense because it was thought to be too costly to businesses.
(3) Who are QCOs?
Private entities, not part of the government. They negotiate and sue on behalf of general consumers. Currently
there are 16 QCOs, and only two of them are SQCOs.
63

20171221

6. CURRENT STATUTORY SCHEMES (AD.PROC.)The CAA’s research on this aspect has been slow, and eventually stopped. Only the following are notable products,
if any, in terms of compensatory redress by government agencies:(1) The Act against Misleading Representations, which prohibits false or misleading advertisements orrepresentations of goods and services, was amended in 2014 to introduce money penalty order coupled with“voluntary payback scheme.”‐‐‐ In the procedure for the money penalty order, its addressee may apply to the CAA for the certification of
its “payback plan,” and the amount of the money actually paid back to consumers shall be deducted whenthe money penalty order is finalized.
(2) Some provisions of the Act on Specified Commercial Transactions were modified in 2016 to make sure thatthe administrative orders may include compensatory remedies in the form of directing performance ofcontractual obligations.
‐‐‐ Text of Article 7 used to be that: “the competent minister … may order the seller or the Service Provider
to take any necessary measures.” Now it reads as follows: “the competent minister … may instruct the seller
or the Service Provider to take measures to protect the interests of the purchaser or the service
recipient or any other necessary measures.” (Same regarding Art.14, 22, 38, 46, 56, 58‐12)7

7. SEGMENT-BASED APPROACH
My viewpoint: legislators should generally take a “segment‐based approach.” Against “bad guys” (rogue traders, predators): government agencies (including criminal authorities)
need to take strongest, legalistic measures: must raid premises, freeze or administratively confiscate
assets, put individuals in jail or prison, and even get the organization bankrupt. Otherwise, they’d runaway.
 Against “normal guys” (reputation‐sensitive but not necessarily compliance‐oriented businesses):
Negotiation should work well only when leveraged by substantially adversarial powers on the side ofgovernment (agency orders) or QCOs (standing to sue). Here businesses are forced to correctly calculate
economic profits and losses and act rationally. The CAA’s orders, if coupled with substantial money
penalty, should also function well to get the negotiation done. In the negotiation, the businesses should
be given opportunities to propose their own plans to correct their wrongdoings.
 Against “good guys” (compliance‐oriented, but rule‐ignorant small businesses): If compliance iseasy, people would comply. Leaving details to voluntary code of conduct or action plans, subject togovernmental approval or guidelines, should normally be the best cost/performance way for achieving
compliance. Giving the sense of participation with nudging is important for fostering naturalcompliance.
84

20171221

8. EVALUATION OF CURRENT STATUTES
Substantive rules should be enforced in several different procedures: Segment approach Japan’s current regulatory schemes are generally not edgy enough even for “normal guys.” Most of theregulatory statutes are written, I would say, by “the normal guys approach by halves.”‐‐‐ Only substantially adversarial powers (esp. money penalty which imposes profound amount of money,not nominal amount) can create incentives for businesses to comply with statutes. However, less than 10statutes provide for administrative orders for such substantial money penalty.
‐‐‐ QCOs, either through collective lawsuits or leveraged negotiation, should be valued as private
enforcers of consumer protection laws. But there are so few of them and not with financial stability.
 Necessity to deal with “bad guys” is not even discussed in detail in legislative process of consumer law.
They tend to be neglected as rare phenomena.
‐‐‐ This approach can be found only in criminal procedure such as Act on Punishment of Organized
Crimes and Control of Crime Proceeds which provides that confiscated money can be distributed tovictims.
98. EVALUATION OF CURRENT STATUTES
 “Good guys” approach (voluntary regulation under government approval) is seldom seen.
To foster “good guys,” details should be left to each individual business or industries.
‐‐‐ Act against Misleading Representations is a rare exception taking such approach. Under its Article
31, industries make voluntary code of conduct regarding representations under approval by both theCAA and the FTC. Article 26 obliges each business entity to make up an action plan to keep proper
representations about contents of their goods and services, which must accord with the Guidelines
issued by the CAA.
 Perhaps, in most cases, each act should have all three dimensions.
‐‐‐ “Normal guys,” if they are big businesses, can only be dealt with by government while othersmaller “normal guys” can dominantly be dealt with by QCOs. Government should also concentrateon crushing “bad guys” and fostering “good guys.”105