Who is monitoring potential harmful practices?
The Competition & Markets Authority ("CMA") has a wide range of consumer powers, in addition to its powers to ensure that businesses comply with competition law.
In March 2020, the CMA set up a COVID-19 Taskforce. One of the key objectives of the Taskforce is to scrutinise market developments and identify harmful practices as they emerge. One key area that the Taskforce is considering is consumer contracts, cancellation terms and refunds. The travel and hospitality sector has been the focus for much of the CMA's attention as most complaints have been in this area.
Additionally, the Taskforce is also reviewing harmful pricing practices that have occurred since the start of the pandemic.
What is CMA doing in relation to such harmful practices?
In recent weeks, there have been an increasing number of reports referring to consumers being subjected to cancellation and refund policies that breach consumer protection law. In response, the CMA has launched a programme to review the allegations that have been made against some businesses.
The Taskforce may consider taking enforcement action against those companies that exploit the pandemic. However, to date the main step that the CMA has taken is to publish guidance on how businesses should be upholding consumer rights in the pandemic.
Under what circumstances should consumers receive a refund?
The CMA considers that for most consumer contracts, the customer should expect to be offered a full refund in the following circumstances:
- The contract has been cancelled by the business without it providing any of the promised goods or services to the consumer;
- Government public health measures mean that the consumer is not allowed or cannot use the services, and consequently either the consumer or the business has cancelled the contract.
The CMA considers that in most cases the consumer will be entitled to a refund even if the business has stated that any deposit or advance payment was non-refundable.
Further, the CMA has stated that businesses should not charge an admin fee (or equivalent) for processing refunds. While the CMA does recognise that it may take businesses longer than normal to process refunds, the CMA has stated that refunds should still be processed within a reasonable time.
What are the limited exceptions to full refunds?
The CMA has noted that there may be some limited exceptions to consumers receiving full refunds. For instance, the consumer may have already have received some of the services they have paid for in advance. In such cases, the CMA considers that the consumer should normally be entitled to receive a refund on at least those services that have not yet been provided. However, it would likely be acceptable for the consumer to pay for those services that it had already received.
The CMA commented that where a business has been prevented from providing a service to the consumer because of Government public health measures, then in some circumstances, the business may be able to deduct a contribution to its incurred costs in relation to the specific contract in question. This will be subject to them the business trying to mitigate its loss by claiming such costs elsewhere. It is important to note that the CMA considers that such circumstances are likely to be relatively rare.
Can vouchers be offered instead of a full refund?
The CMA has stated that it is normally acceptable for consumers to be offered credits, vouchers or a re-booking instead of a refund. However, the CMA has informed businesses that they should not pressure consumers into accepting these alternatives to a refund. Further, a refund should be made just as easy an option as the above alternatives.
It is also important that any restrictions that apply to the alternatives to a refund are fair and made clear to consumers. For instance, businesses should therefore consider the appropriate length of time of time that vouchers are valid for until they expire.
However, it is worth noting that the European Commission and some Member States have clashed over their views on the whether full refunds should be available to consumers. In late April 2020, Belgium, Bulgaria, Cyprus, the Czech Republic, Greece, France, Ireland, Latvia, Malta, the Netherlands, Poland and Portugal signed the joint letter to state that as a temporary move companies should be permitted only to offer vouchers. To date, the European Commission has dismissed such calls, as it considers that it is against the current rules to offer only vouchers to consumers. The Commission has however offered its support to travel companies by saying that vouchers and credit notes may be offered as an alternative to a refund so long as the consumer has a choice and so long as the credit note can be exchanged for cash after a given period of time.
What is the position regarding ongoing contracts?
Where under an ongoing contract, the consumer in return for a regular payment receives a regular service, the CMA considers that the following position normally applies under consumer protection law:
- The consumer should be offered a refund on any services that cannot be provided by the business or which the consumer is not allowed to use because of Government public health measures, but which the consumer has already paid for.
- The consumer may choose to withhold payment for any services which due to Government public health measures prevent the business from providing or the consumer from using such services.
- The business, under the terms of the contract (which must be fair and clear), may be permitted request a small contribution to its costs until the service is resumed.
What is the position regarding future contracts?
Some contracts, such as holidays booked through a travel agent, require consumers to pay now for future services which should take place once the current disruption has ceased. The CMA advises businesses not to seek payment for services that it is not certain that they can provide. However, if a business reasonably expects that the services can be provided then it may seek payment from its customers. That being said, if it later transpires that the service cannot be provided then the current position is that refunds and/or vouchers should be offered in accordance with the above guidance.
What happens if consumers cancel for other reasons?
If the consumer cancels a contract because they no longer want the service, then any refund will be made in line with the applicable terms and conditions (on the assumption that such terms are fair). The CMA has produced guidance to help businesses make sure such that the terms they agree with consumers are fair and clear.
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