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Feature Note / Newsletter

Sernac releases interpretative circular on alternative compensation mechanisms

alternative compensation mechanisms , Sernac
20 October, 2020

Rodrigo Valenzuela

Associate

Alessandri

The National Consumer Service (Sernac) published an interpretive circular on alternative mechanisms for distributing compensation, repairs, returns and/or compensation for damages to collective and diffuse interests.

Collective interests are defined as those that a group of consumers have as a unit, when they have no relationship among themselves except for being linked to a specific supplier for the sale of a product or the provision of a service. They are of diffuse interest when consumers exist, but for the moment they are indeterminate in the sense that it is not known who they are. They could later be determined and be part of a process for infringement of consumer protection law.

The recent consumer legislation regulates the payment of compensation, repairs, refunds and/or indemnities to determined or determinable consumers, establishing a system of payment in money to the affected consumers. In the case of money that was not claimed, it becomes part of a special fund established by law. The law also considers the possibility that the compensations are not in money, but in kind, beyond the reparation and return.

The circular mentions the distribution of compensations and reparations for cases in which the consumers are indeterminate or indeterminable. Precisely to fill this legal gap, Sernac has considered two doctrines: “Cy-près” or “Cy pres distribution” – and “full recovery”, which are considered fully applicable as tools to determine the effective distribution of compensations whose beneficiaries are indeterminate or indeterminable.

Rather, they are a way of repairing the damage caused when individual compensation is impossible or impossible to achieve, considering that a judge must consider not only the purpose of the compensation in relation to those affected, but also the punitive, and therefore dissuasive, effect of the penalty.

Using these two criteria, it is possible to create alternative mechanisms of compensation when it is not possible to give money to certain persons as part of an indemnity and compensation for violations of consumer protection law.

Looking for alternative mechanisms to compensate people affected by violations of consumer protection law, Sernac has established the following criteria:

a. Priority of direct compensation
Prevailing treatment will be direct compensation for damages to those affected, for which groups and subgroups of homogeneous consumers must be created, and preferential compensation will be given to consumers belonging to that group when they are individually identifiable. Secondly, the application of alternative mechanisms will be allowed for those groups that cannot be determined.

b. Proximity
In the case of the use of alternative compensation mechanisms, the court must require the parties to propose who may be the beneficiaries of such mechanisms, for which purpose it must consider those who represent or have interests that are reasonably close to the consumers who are victims of the damages, the interest of which was intended to be protected by the filing of the collective action giving rise to the distribution mechanism.

c. Unaffected by the fund of article 11 bis
Money that was not transferred or claimed by members of a particular class or subgroup in a class action will go into the fund established in Section 11 of the Consumer Protection Act. In the case of the undetermined funds, it will be necessary to establish in an agreement the rules for determining the destination of such balances, which could be redistributed among other groups or subgroups; or even, become part of the same fund mentioned above, as agreed.

d. Exceptional and subsidiary nature
The alternative mechanism will only be used for cases where the affected consumers are indeterminate or indeterminable, or when it is a question of compensation for damage to diffuse interests.

However, it can also be used in the following cases:

1. When the relationship between the number of consumers to be compensated and the amount to be divided makes the reparation lower than the individual cost. In this way, it seeks to ensure that the consumer receives reasonable compensation.
2. Certain facts make it difficult, or impossible, to determine and identify the beneficiary consumers within the collective group.

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