Sectors in the spotlight
On 20 March 2020, the CMA launched its COVID-19 Taskforce to monitor market developments and identify the harmful practices facing consumers in the current climate.
The COVID-19 Taskforce’s Report of 24 April identified that 4 out of 5 complaints it had received were in relation to cancellations and refunds coming out of the COVID-19 crisis. Restrictions on travel have forced consumers to cancel holidays, travel and other plans and the CMA is particularly concerned about businesses refusing refunds in these circumstances.
Initial sectors of concern include: (i) weddings and private events; (ii) holiday accommodation; and (iii) nurseries and childcare providers. As such, hotel and rental operators falling into the former two categories may in particular find themselves under increased scrutiny.
The CMA will also investigate more widely, stating that it will “tackle these areas as a priority and then move on to examine other sectors, based on the information received by the taskforce”. Businesses operating outside of the above-named industries will not be overlooked.
Whilst the CMA acknowledged that most business are doing the right thing, it found evidence that some companies are failing to comply with the law and makes it clear that enforcement action will be taken where necessary.
Dealing with cancellation and refund rights during the crisis
In parallel to the COVID-19 Taskforce’s findings, the CMA issued Guidance on 30 April 2020 reaffirming how the law operates in relation to cancellations and refunds for both goods and services during the outbreak.
For most consumer contracts, the CMA expects a full refund to be issued 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 the restrictions that apply during the current lockdown; or
- a consumer cancels or is prevented from receiving the service, for example due to the restrictions that apply during the current lockdown.
There are limited exceptions to the provision of full refunds, including where a consumer has already received some benefit, but it warns that in such circumstances, a consumer would at least be entitled to a refund for anything paid for which has not been provided.
The Guidance clarifies that this exception would also be relevant to ongoing contracts i.e. where a consumer makes regular payment in exchange for receives regular services. In these circumstances, a consumer should be:
- offered a refund for services paid for but not provided; and
- permitted to withhold payment for services that cannot be provided.
However, in relation to ongoing contracts specifically, a business may require a small contribution from a customer to its costs until the provision of the service is resumed – but only where this is provided for clearly and fairly in its contractual terms.
Credit or voucher alternatives?
Whilst the CMA notes that consumers can be offered credits, vouchers or re-scheduling as an alternative to a refund, a consumer should not be misled or pressured into doing so.
Most notably, refunds should be given even in relation to what a business might consider as “non-refundable” deposits or advance payments made by a consumer.
It is acknowledged that it may take longer than usual to process refunds, but timeframes need to be reasonable and made clear to consumers. The CMA also advises that refunds should not be subject to an administrative fee.
Looking forwards, the CMA confirms that contracts for future services will be subject to a right to refund if such services are not provided when the time comes – and warns that businesses should not be seeking payments for services which it knows it will not be able to provide.
Finally, the Guidance makes clear that where a consumer wishes to cancel a contract because it no longer wants to receive a service even though such services can still be performed, it is entitled to a refund in line with applicable terms and conditions.
How are retailers adapting?
For retail businesses, dealing with returns and refunds has been a key issue since the government announced that all shops selling “non-essential” goods were to be closed, and with the public’s access to postal services being hampered by lockdown measures.
In light of the CMA’s monitoring of unfair behaviour towards consumers – in particular where consumer cancellation rights are ignored – many retail businesses have responded rapidly to the change in circumstances.
For example, one of the best-known UK high street retailers has extended cancellation policies to allow for change of mind returns to be made up to 35 days after stores re-open. Similarly, one of the UK’s largest online clothing retailers has also extended its returns policy to 90 days – with the award of gift vouchers for returns outside this period. Other retailers which have halted sales in their entirety are accepting returns via collection services or extending returns until shops re-open.
In the EU, we have seen regulators stepping in to preserve consumers’ cancellation rights. For example, in Spain the 14 day withdrawal right under the Consumer Rights Directive has effectively been suspended during the COVID-19 crisis for consumer products purchased both online and in-store, with the clock not starting until there is an official declaration that the state of emergency is over.
How should businesses respond?
With the CMA’s warning of forthcoming enforcement action for non-compliant refund and cancellation policies, businesses should review their policies and activities in response to the recent Guidance, and consider how best to adapt during this challenging period.
Whilst the picture for post-COVID-19 retailers is uncertain, the CMA’s overall ambition is to maintain consumer confidence. With its resultant beneficial impact on spending activity, confidence is key for productivity and recovery of the economy. It is also worth keeping the reputational impact in mind – the records show that consumers have long memories and will remember the businesses who treated them well when the chips were down, with a potentially significant impact on future business for those not playing fair.