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Guidance on cancellations and refunds during the coronavirus (COVID-19) pandemic

05 May 2020
With a rapid increase in the number of consumer complaints regarding cancellations and refunds due to the impact of COVID-19, this article examines new guidance provided by the CMA regarding this developing issue.

The COVID-19 Taskforce, set up by the Competition and Markets Authority ("CMA") to "identify, monitor and respond to competition and consumer problems arising from coronavirus", reports that four in five complaints it has received from consumers concern cancellations and refunds. 

As a response, the CMA has announced that the Taskforce will examine three sectors of particular concern as a priority, namely:

(i) weddings and private events;
(ii) holiday accommodation; and 
(iii) nurseries and childcare providers.

It is not clear at this stage how this examination will unfold but the CMA warns that businesses should not seek the "double recovery" of money from the government and their customers, and that the CMA will take "appropriate enforcement action" where necessary.

The CMA has also set out a statement with general views about how consumer law applies in relation to cancellations and refunds in light of the pandemic.

As a general rule, the CMA states that it expects consumers to be offered a full refund in most cases where: 

(i) a business has cancelled a contract without providing any of the promised goods or services; 
(ii) no service is provided by a business because of the government's lockdown measures; or
(iii) a consumer cancels, or is prevented from receiving any services, because of the Government's lockdown measures.

The statement also provides guidance for the following, less straightforward, circumstances:

1. What happens if a consumer has received some, but not all, of the services they paid for in advance?

The CMA suggests that a consumer will normally be entitled to a refund for services that are not provided.  However, this right is unlikely to extend to services already received by the consumer and as such, the consumer will not usually be entitled to get all their money back. 

2. What happens if a consumer receives regular services in exchange for a regular payment as part of an ongoing contract?

The CMA applies the general rule above to conclude that a consumer should be offered a refund for any services that are not provided, or that they cannot use, as a result of the government's lockdown measures. 

The CMA also considers that consumer protection law will normally entitle a consumer to withhold payment for such services. Further, whilst a business may be able to request a small contribution to its costs until the service is resumed, the CMA stresses that this is only where the underlying contractual terms sets this out clearly and fairly.

3. What happens if a business describes a payment as non-refundable, or offers alternative options to a refund? 

The CMA still considers the above rights to a refund applicable even where a payment is described as a non-refundable deposit or advance payment. Therefore, such labels should not prevent a consumer from obtaining a refund where such refund would otherwise be given. 

Further, whilst a business may offer alternatives to a refund, such as vouchers or re-scheduling, the CMA states that a refund should still be included as a viable option that is just as clear and available to the consumer.

4. What happens if the contract requires payment now for services that a consumer will receive in the future? 

Where a business reasonably expects to provide the future service as agreed, the CMA states that the business may continue to seek payment as usual. However, where a business knows that it will be unable to provide the service as requested, it should not seek such payment. 

The CMA does not address the circumstances where a business only suspects that it will be unable to provide the service, a position that many businesses may find themselves in.

Ultimately, however, the rights of consumers to receive refunds under this type of contract will depend on whether the services are actually provided as previously agreed. 

If you have any questions or need any support, do not hesitate to get in touch on the contact details shown below. For more insights relating to COVID-19, please see the DWF COVID-19 Legal Insights Hub

Author: Jenny Davies.

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