COVID-19 and consumer law: refunds and cancellations

COVID-19 and consumer law: refunds and cancellations

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The Competition and Markets Authority (CMA) published guidance on 30 April 2020 reminding businesses how they should act during the COVID-19 crisis to ensure that they are complying with consumer protection legislation. In particular, the guidance gives an overview of how the retail sector has reacted to the outbreak, as well as advising businesses how to handle complaints, refunds and cancellations.

Impact of COVID-19

On 24 April 2020, the CMA published a report revealing that four of five consumer complaints since 20 March 2020 were linked to cancellations and refunds during the COVID-19 crisis. It identified that consumers are concerned about receiving refunds when cancelling holidays, travel and other plans and that the retail, holiday, wedding and childcare sectors have been hardest hit.

The CMA has launched a COVID-19 ‘taskforce’ that will review the measures businesses are taking in these sectors as a priority and will also investigate more widely based on harmful practices identified in the current climate. Enforcement action will be taken by the taskforce where businesses are failing to comply with consumer protection legislation.

CMA guidance on refunds

The Guidance indicates that a business should issue full refunds where, due to lockdown restrictions:

  • It has cancelled a contract without providing any of the promised goods or services
  • No service has been provided by the business, or
  • The consumer cancels or is prevented from receiving the service.

There are limited exceptions to the above scenarios, which include:

  • If the consumer has already received some benefit from the business – although they are still entitled to a partial refund for anything paid for and not provided.
  • If there is an ongoing contract and the consumer makes regular payments in exchange for receiving regular services, in which case consumers should be:
    • offered a partial refund for services paid for but not provided, or
    • permitted to withhold payment for services that cannot be provided.

Refunds should not be subject to administrative fees and should be provided within a reasonable timeframe that is made clear to the consumer – although the CMA does recognise that refunds may take longer to process in the circumstances. However, businesses are permitted to require a small contribution from a consumer towards costs until the provision of the service is resumed, provided that the contribution is clearly and fairly provided for in the contract for goods or services.

Guidance on credit and vouchers

As an alternative to refunds, the guidance says that consumers can be offered credit, vouchers or re-scheduling of services as long as the business does not mislead or pressure the consumer into accepting the alternative.

However, it also clarifies that businesses should still offer refunds in relation to:

  • 'Non-refundable’ deposits or advance payments made by a consumer.
  • Services that can still be performed, but where the consumer wishes to cancel because it no longer wants to receive the service (as long as it is provided for in the T&Cs).

Additionally, the guidance confirms that consumers may be entitled to a refund for future service contracts if the services are not provided when the time comes. In light of this, businesses should not be booking or seeking payments for future services that they know now they will not be able to provide.

How should businesses adapt?

The guidance emphasises that, despite the difficult financial circumstances, most businesses have responded well to the issues consumers are facing during the COVID-19 outbreak, with many extending returns policies, introducing returns by post or by offering gift vouchers for extended periods after their returns policies have lapsed.

In light of the creation of the CMA taskforce and the release of tailored guidance to help businesses navigate consumer law during the outbreak, businesses may wish to consider the how any returns, complaints and cancellations procedures are operating and whether they need to be modified in light of the CMA’s guidance.

In deciding which course of action to take, businesses may have to take difficult decisions balancing their need to recover costs or preserve margin with the need to comply with the law and give adequate consumer redress.

If you have any specific questions about business policies, procedures or issues arising from the COVID-19 crisis, please contact our commercial team.

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