Coronavirus refunds and cancellations under CMA scrutiny

Companies can offer consumers alternatives to a refund, such as credits, vouchers, re-booking or re-scheduling, but in doing so the option of a refund should be "as clearly and easily available", the authority said.

The CMA outlined the position in new guidance it published on 30 April concerning coronavirus consumer contracts, cancellation and refunds. The guidance set out the CMA's expectations of businesses whose provision of services to consumers may be impacted by the ongoing public health emergency.

"For most consumer contracts the CMA would expect a consumer to be offered a full refund where: a business has cancelled a contract without providing any of the promised goods or services; no service is provided by a business, for example because this is prevented by government public health measures; a consumer cancels, or is prevented from receiving any services, because government public health measures mean they are not allowed to use the services," the CMA said.

The guidance outlined the CMA's views on when exceptions to the refund requirement would apply, business' obligations when consumers cancel contracts, as well as the position in relation to ongoing contracts and the charging of administration fees.

While the CMA has acknowledged that "most businesses are trying to do the right thing", it set up a Covid-19 taskforce in March to "identify, monitor and respond to competition and consumer problems arising from coronavirus and the measures taken to contain it". It reported receiving almost 21,000 complaints about coronavirus-related issues between 10 March and 19 April.

In its latest statement, the CMA said 80% of the complaints received by the taskforce have concerned cancellations and refunds.

Competition and consumer law expert Angelique Bret of Pinsent Masons, the law firm behind Out-Law, said the issue of refunds and cancellation complaints is likely to be a difficult area for the regulator to balance. This is because while many consumers will have a legal right for full refunds for cancelled events or purchases, many businesses are requesting that consideration is taken of the financial impact this will have and are actively urging consumers to take up alternative options to refunds.

According to the CMA, its taskforce will focus its immediate scrutiny on practices in three sectors – weddings and private events; holiday accommodation, and; nurseries and childcare providers. It has threatened enforcement action if it finds failings under consumer law.

In its guidance, the CMA acknowledged that, in relation to refunds, it may take businesses "longer than normal" at present to process those payments. However, businesses should make the time-frames for providing refunds "clear" to consumers and should not take longer than "a reasonable time" to make those payments. It made specific reference to statutory deadlines applicable to refund payments in relation to package holidays which it said should be taken into account by relevant providers.

Andrew Barber of Pinsent Masons, who specialises in financial services regulation, said trade body UK Finance has published information explaining the ways consumers can recover amounts paid for by debit or credit card where their travel has been cancelled as a result of the Covid-19 lockdown.

"Travel arrangements paid for by debit card rather than credit card will be outside the protection of section 75 of the Consumer Credit Act, although chargeback rights exist for both debit and credit card purchasers," Barber said. "There may be rights under travel insurance and of course the terms and conditions applicable to the particular contract and the specific facts of each travel booking need to be considered."

"The UK Finance FAQs are helpful as they explain that because of the complexity of some travel bookings and payment arrangements, unravelling whether a customer is eligible for a refund and from whom may not be immediately clear. Consumers should think carefully before accepting an alternative booking or voucher for cancelled travel as they won't be able to change their mind and later try and make a chargeback or section 75 claim," he said.

The CMA's latest statement and guidance follows an earlier update on the work of its taskforce which confirmed its scrutiny of "unjustifiable" price increases or mis-selling of products by businesses during the Covid-19 crisis, such as certain food and cleaning products which have been in high demand in the UK.

On 24 April, the CMA reported that it had received over 2,500 complaints regarding large price rises for certain products, and allegations they have been mis-sold. Those complaints, it said, led it to write to 187 different businesses regarding complaints raised over the most common products.

Angelique Bret of Pinsent Masons said the CMA will consider how it can pursue these complaints under either its competition law powers or its consumer protection law powers.

Excessive pricing cases can be brought against firms with a dominant market position under the competition the law rules, while the consumer protection rules can be used to challenge conduct including unfair and aggressive commercial practices, as well as conduct which is to the detriment of the consumer and which creates a significant in-balance between parties to a contract. Any products being mis-sold to consumers, for example as a result of incorrect descriptions, would be a particular area of focus under the CMA’s consumer protection powers.

Bret said it is clear that the CMA has been considering these issues throughout the supply chain, which suggests that the practices of intermediaries listing products for sale, as well as manufacturers and sellers, are under scrutiny.

"The CMA is increasingly demonstrating its determination to focus on, and address, consumer harm, in particular as regards ‘vulnerable’ consumers," Bret said. "Given this focus, high profile investigations are possible into any market operator found to be in breach of the consumer protection rules in relation to Covid-19."

"However, high prices in themselves do not tend to be caught by the consumer protection rules; high pricing is generally addressed as an infringement of the competition law rules if it involves a dominant player in the market. Any agreement between competing companies relating to the prices they charge can amount to a serious infringement of the competition law rules too, with the risk of significant fines being imposed," she said.