The CMA updates advice on consumer cancellations and refunds during pandemic

Contracts which cannot go ahead due to lockdown laws

These contracts will be frustrated. The consumer will generally have the right to a full refund where a trader is prevented from providing a service or supplying goods due to lockdown laws. This will also be the case if a consumer cancels a service or cannot receive it because lockdown laws in the UK or abroad have made it illegal to receive or use the goods or services.

Where a consumer is entitled to a refund as a result of a frustrated contract, they are not required to contact the business to ask for it. Businesses should not require consumers to take unreasonable or unnecessary steps in order to obtain refunds and risk breaching consumer protection laws if they do.

Limited exceptions to full refunds

Consumers are expected to pay for anything of value that they have received. This means that where they have already received some services paid for in advance, they will not usually be entitled to get their money back for them but will only get a refund for the services not provided. A business may also be able to deduct a contribution to costs already incurred from a consumer refund where those costs cannot be recovered elsewhere, however, the CMA suggests these cases will be relatively rare and the deductible amount limited. Whether or not such a deduction can be made will depend on the circumstances and would ultimately have to be decided by the courts.

Ongoing contracts

Where a consumer receives regular services in exchange for a regular payment as part of an ongoing contract, the consumer will normally be entitled to a refund for any services they have already paid for but which are not provided or which the consumer may not use due to lockdown laws. The refund may be partial if part of the services has been provided. Consumers will normally be entitled to withhold payment for services which are not provided, or which cannot be received due to lockdown laws. A business may be able to require a consumer to pay a small contribution to its costs until services are resumed but only where this is clearly set out in the contract terms and conditions, and provided the consumer is free to terminate if they do not want to pay. Consumers must be treated fairly and must not be misled about their rights.

Non-refundable payments and fees

The CMA says rights to refunds where a contract is frustrated will usually apply even where a contract stipulates that a payment is part of a non-refundable deposit. Terms which purport to allow a business not to provide a service but to keep a consumer's money, are likely to be unfair and unenforceable under Part 2 of the Consumer Rights Act 2015 (CRA). In addition, there should be no administrative charge for processing a refund.

Credits and re-booking

As stated in the earlier guidance, traders can offer consumers alternatives to cash refunds including credit vouchers or re-booking. However, they must not mislead or pressure consumers into accepting them or lead them to believe they are not entitled to a cash refund if they are. The cash refund should be just as easily available. Any restrictions to refunds of vouchers must be fair and transparent.

Timing of refunds

The CMA accepts that in the early stages of the pandemic, there may have been a delay to processing refunds. Now, however, the timeframes for providing refunds must be made clear to consumers and refunds should be given "promptly and without delay". The CMA notes statutory deadlines will apply in some cases.

Payments for future services

A business should not seek advance payments for services it knows it will not be able to provide in future, for example because relevant lockdown laws will still be in place when the contract is due to be performed. The contract is likely to be frustrated at the point this becomes clear.

Consumers may be willing to reach an agreement over what should happen if the lockdown laws change and the contract could be performed in future but they are not required to do so and should not be left worse off if they do.

Where it is reasonably likely that the business will be able to provide services as agreed, it can require consumers to carry on making contractual payments in advance of performance.

Contracts partially affected by lockdown laws

As lockdown laws ease, it may be the case that a business is no longer completely prevented from providing services but where the service would be radically different to what was agreed, the consumer would, in most cases, be entitled to a full refund. If only minor differences remain, the consumer would be entitled to, at most, an appropriate price reduction with respect to the differences. This would be in addition to any available contractual cancellation rights.

Changing terms in existing contracts during the pandemic

Variation clauses are likely to be unfair and unenforceable under Part 2 CRA if:

• they allow the business to adjust important aspects of the contract at will
• the consumer is not given reasonable notice of any changes
• the consumer does not have the right to freely cancel the contract without being left worse off.

Terms in new contracts relating to coronavirus

For businesses looking to include terms specifically relating to the pandemic in their consumer contracts, the CMA cautions that terms are likely to be unfair and unenforceable if they prevent consumers from obtaining a refund where lockdown laws mean a contract cannot be performed as agreed. Terms dealing with COVID-related refunds as well as refund and cancellation terms more generally, should be clearly brought to the consumer's attention prior to their entering into the contract. The terms are more likely to be fair and enforceable where they:

• put strict and narrow limits on any reductions to the scope of consumers' rights to refunds
• allow consumers to get most of their money back and restrict business retention to costs already incurred in performing the contract.

All cases will need to be assessed on the facts.

Cancellation in response to government guidance

The CMA notes that the situation is more complex where a business or consumer does not want to go ahead with a contract as a result of government guidance (rather than due to lockdown laws). Examples of this kind of guidance are FCO travel advice (although package holidays are protected under specific laws under these circumstances), and self-isolation after contact by NHS test and trace. In these cases, a contract is less likely to be considered as frustrated. Frustration is more likely where the advice or guidance means a consumer would be at serious risk if the contract went ahead as agreed. If the contract is not frustrated, normal cancellation and refund terms will apply. In all cases, the CMA says businesses must treat consumers fairly and responsibly and this may include trying to find a mutually acceptable solution.

Cancellation under standard terms and conditions

The CMA reminds businesses about the kinds of terms that are or are not likely to be fair when relying on standard terms and conditions.

• A consumer will generally be entitled to a refund if the trader cancels due to government guidance.
• Where a consumer cancels because of government guidance, they should not face unduly high charges for doing so.
• Cancellation and refund terms which do not take into account savings the business is making as a result of not having to perform the contract are likely to be unfair.
• Any money kept by the business must reflect what it is actually losing, and the contract should set out clearly how any cancellation charge will be calculated.

The CMA says that in most cases, in order to be fair:

• Non-refundable deposits should only be a small percentage of the total price.
• Advance payments for future services which are not performed should usually be refunded and any deductions limited to costs the business has already incurred.
• Cancellation charges should be limited to a genuine pre-estimate of what a business will lose directly.
• Businesses should not be compensated twice for the same loss.