Do you need to offer consumers refunds for COVID-19 related cancellations?

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What's the issue?

Our personal diaries are blank. We have all had to cancel planned holidays and events and we know that in some cases the cancellation and refund process works more smoothly than in others.

The Competition and Markets Authority's (CMA) COVID-19 taskforce, set up in March to tackle negative impacts of COVID-19 on consumers, had received 21,000 COVID-19-related complaints relating to over 6000 businesses by 24 April. Complaints relating to cancellations and refunds now account for four out every five received. Concerns include people being pressured to accept vouchers for holiday accommodation which can only be used during a more expensive period, wedding venues refusing to refund any money and telling people to claim on insurance, and people being asked to pay high sums of money to keep nursery places open for their children.

What's the development?

The CMA has announced an investigation into complaints about cancellation and refunds as part of a programme of work which also includes a statement on consumer rights in relation to consumer contracts affected by the pandemic.

The CMA says its key concerns are:

Refusal to refund.
Unnecessary complexity of refund processes.
Charging high fees for processing refunds.
Pressuring consumers into accepting vouchers instead of cash refunds.

The CMA has identified three sectors of particular concern which it will investigate as a priority: weddings and private events; holiday accommodation; and nurseries and childcare providers. The CMA will move on to other sectors based on the information it gets from the taskforce.

Refunds where contract is not performed as agreed

Consumers will generally be entitled to a refund where a contract is not performed as agreed. The CMA would expect most consumer contracts to offer 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 health measures.
A consumer cancels or is prevented from receiving any services because government public health measures mean they are not allowed to receive them.

There are limited exceptions to full refunds. Where a consumer has already received some of the services, they will be required to pay for them and will only be entitled to a partial refund. The business may also be able to deduct a contribution to costs it has already incurred (where it cannot recoup the costs elsewhere) from a refund although the CMA says these cases are likely to be relatively rare and the costs which can be deducted are likely to be limited.

What does this mean for you?

If a consumer contract is not performed as agreed, you will most likely need to give the consumer a refund, even where they have given you a deposit or payment which is described as 'non-refundable'. In limited cases, you may be able to give a partial refund.

You may offer consumers alternative options to a refund but these should be in addition to, not instead of a refund, and you should not pressure the consumer into taking an alternative option. You should give equal prominence to all options.

Will normally require the consumer to be offered a refund for any services they have already paid for but that are not provided or which the consumer is not allowed to use due to government public health measures. The refund may be partial where some services have already been provided.
Will normally allow the consumer to withhold payment for services which are not provided or which the consumer is not allowed to receive.
May allow a business to require the consumer to pay a small contribution to its costs until the service is resumed where the contract sets out provision for this clearly and fairly.

Non-refundable payments and fees

The above rights to a refund will usually apply even if the consumer has paid what is described to them as a non-refundable deposit or advance payment. Businesses should not, in the CMA's view, charge an admin fee for processing refunds.

Credits and rebooking

Consumers can be offered alternatives to refunds, for example, credits, vouchers or re-booking, but they should not be misled or pressured into accepting them. A refund should still be an option made just as clearly and easily available as other options. Any restrictions to alternatives such as date of redemption, must be fair and made clear to consumers.

Timeframe for refunds

The CMA acknowledges that refunds may take longer to process during the pandemic than usual. Consumers should be informed of the likely time period involved and refunds must still be given within a reasonable time. Where there is a statutory time within which a refund must be given, that should be taken into account.

Future contracts

A business should not ask for advance payments for a service it knows it will be unable to provide but where it has a reasonable expectation of being able to perform future services, it can require consumers to make payments where the contract provides for them. The consumer's right to a refund will depend on whether or not the service can be provided when the time comes.

Cancellation by consumers for other reasons

If a consumer cancels a contract for other reasons because they no longer want the service even though it can be provided as agreed, the consumer will be entitled to a refund in accordance with the applicable terms and conditions (provided these are fair).

The CMA notes that only the courts can decide on the law. Consumers can apply to the courts to enforce their statutory rights and also have private rights to enforce CPUT where they can show that a misleading or aggressive practice led them to make a payment or enter into a contract. The CMA can, however, prosecute traders for offences under Part 8 of the Enterprise Act 2002, as well as ask the court to make an order to stop specific breaches of consumer protection law; require businesses to implement redress measures or schemes; or to undertake compliance measures or give consumers more choice.