CMA publishes new guidance on consumer contracts during COVID-19

Following its receipt of almost 21,000 complaints between 10 March and 19 April (particularly in relation to the provision of refunds, see more details here), the Competition and Markets Authority published new guidance on 30 April 2020 in relation to the performance of consumer contracts in the context of COVID-19.

Cancellation and refunds as a result of COVID-19

In most cases where a contract is not performed as agreed, consumer protection law will generally allow consumers to obtain a refund. In particular, the CMA expects business to offer full refunds 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 Government public health measures;

• a consumer cancels, or is prevented from receiving any services,
  because Government public health measures.

There are some exceptions to this, for example where a consumer has already received some of the services that have been paid for in advance. The CMA takes the view that in this case, the consumer should be entitled to a refund for at least the part that has not been provided. Where the individual has received something of value they should be expected to pay for it and would not normally be entitled to a full refund. In some very rare cases a business may be able to justify retaining a portion of the amount paid to cover amounts already incurred in relation to the arrangement despite not providing the services.

The position is very similar where the service is provided on an ongoing basis, as a regular service provided in exchange for a regular payment. In this case the CMA takes the view that:

• the consumer should normally receive a refund for services paid forbut
  not provided or where the Government measures prevent them from
  receiving them (this can be a partial refund);

• the consumer will normally be entitled to withhold payment for
  services that are not provided or where the Government measures
  prevent the consumer from receiving them;

• a business may be able to justify retaining a portion of the amount
  paid to cover costs until the service is resumed, but only where the
  contract terms set this principle out clearly and fairly.

The CMA further clarified that all of the above points in relation to refunds apply, even if the business has specified that the amount was a ‘non-refundable deposits or advance’ and that businesses should not charge an admin fee for processing refunds in these cases. Additionally, the CMA stated that it is acceptable to offer credits, vouchers, re-booking or re-scheduling as an alternative to a refund, but consumers should not be misled or pressured into accepting these. It must always be presented as an optimal alternative (with clear and fair accompanying terms, covering any restrictions) to refunds.

Non COVID-19 related cancellation

If a consumer chooses to cancel a service, even though it can still be provided, the consumer will be entitled to their rights set out in the applicable terms and conditions (subject to normal consumer law).

What happens next?

This guidance sets out the CMA’s view on how businesses should manage their relationships with consumers in relation to consumer contracts that have been prevented or cancelled as a result of COVID-19. This guidance does not have binding effect in law, but depending on the amount and quality of the evidence in the complaints, the CMA has the power to take some actions. These may include seeking further information from businesses, issuing advisory or warning letters, working with enforcement partners, consumer bodies and trade associations, and, where appropriate, taking enforcement action under its competition and consumer protection law powers. The CMA launched a COVID-19 Taskforce to monitor this point, though currently it is focused on weddings and private events, holiday accommodation and nurseries and childcare.

Next steps

Businesses that provide services to consumers should carefully consider their policy in relation to cancellations and refunds and whether this is in line with the CMA’s guidance and consumer law. Although the CMA guidance does not have immediate force of law, the position the CMA has been widely publicised, likely increasing consumer and media scrutiny on consumer services practices.