Consumers subjected to unfair commercial practices due to COVID-19 cancellations

Back in April, the Competition and Markets Authority (CMA) established a COVID-19 Taskforce, a programme of work which monitors market developments and helps to identify the big problems facing consumers.

As expected, the Taskforce update published in July has seen an increasing number of complaints as the ramifications of the pandemic continue, with cancellations and refunds causing approximately 80 per cent of grievances. With the lines between what consumers expect and what consumers are entitled to seemingly unclear and incredibly varied, it’s difficult to understand what is expected, particularly in terms of reimbursements for cancelled/rescheduled events.

After analysing the number of complaints received, the CMA identified the following three sectors as areas of particular concern:

• Weddings and private events
• Holiday accommodation
• Nurseries and childcare providers

The role of the CMA

The CMA has committed to tackling these areas as a priority, before moving on to examine other industries based on the information received by the CMA COVID-19 Taskforce. It acknowledges that most businesses are attempting to do the right thing in these unprecedented circumstances but, at the same time, consumers deserve to have their rights protected.

The government department has been very clear in its guidelines on ‘double recovery’, whereby businesses attempt to secure their money back from both the Government and from customers. If evidence of companies failing to comply with the law is uncovered, the CMA will take appropriate enforcement action. This could include taking a business to court if it does not address the CMA’s concerns.

As well as examining specific sectors, the CMA also issued a statement, detailing its views on consumer protection law in relation to cancellations and refunds during the current crisis.

The statement covered a range of consumer contracts and different situations, stating that, in most cases, the CMA would expect a full refund to be offered if:

• a business has cancelled a contract without providing any of the promised goods or services
• no service is provided by a business because this is prevented by restrictions that apply during a Government-enforced lockdown
• a consumer cancels or is prevented from receiving any services, because of the restrictions that apply during a Government-enforced lockdown

 Business responsibilities regarding refunds

The guidance does not detail the specific laws which mandate refunds because these will be dependent on circumstances. In some cases, consumers will have statutory rights to a refund, for example under the Consumer Rights Act 2015. Where this is not applicable, the consumer may be entitled to a refund under the applicable terms and conditions or, alternatively, where terms and conditions which deny a refund are unjust and unenforceable under the unfair terms provisions of the Consumer Rights Act 2015.

The CMA’s Unfair Terms guidance makes it clear that businesses should not make the consumer its insurer or expect the consumer to bear the risk of businesses going insolvent.

However, the CMA does envisage certain circumstances where a partial refund may be more appropriate, such as when the consumer has already received part-value of the product/service.

Similarly, if a business has incurred some costs, the business may be able to deduct a contribution towards such costs from the refund where it cannot recover the costs elsewhere. However, businesses are being advised to ensure they have a strong case in these circumstances as the CMA suggested these cases are likely to be ‘rare’ and the deductions ‘usually limited’.

In terms of the refund process, the CMA acknowledges that it may take longer to process refunds, but businesses must still ‘take into account’ statutory deadlines and cannot apply admin fees to refunds. The CMA could take action if a business fails to comply with these statutory deadlines.

Refund alternatives

It remains open to businesses to offer consumers credit notes or vouchers as an alternative to a refund. Some businesses offer incentives for consumers to accept vouchers, for example by offering vouchers which exceed the original amount. However, the CMA makes it clear that cash refunds should still be easily available to consumers and any restrictions on the use of credits and vouchers must be fair.

This is particularly prevalent in the travel industry. For example, requiring consumers to rebook their holiday within a limited timeframe could be deemed unfair. Businesses should also avoid misleading or pressurising consumers into accepting vouchers instead of refunds as doing so could represent a criminal offence under the Consumer Protection from Unfair Trading Regulations 2008.

Finally, the CMA warns that businesses should not seek payments in respect of services it knows it cannot provide because of COVID-19. This warning suggests that, for example, a holiday accommodation provider should not insist on a consumer paying the balance if their holiday cannot take place on the suggested dates.

With the CMA set to open investigations in various other sectors, it’s more imperative than ever for business owners to be operating on the right side of compliance. If you’d like more information on the CMA guidelines, feel free to get in touch via Melissa.welch@primaslaw.co.uk