CMA to investigate cancellation policy concerns

6th May 2020

What’s the latest news about refunds for cancellation of events or termination of services as a result of Covid-19 (Coronavirus)?

The Competition and Markets Authority (CMA) announced on 1 May 2020 that it has established a Covid-19 Taskforce to monitor market developments and identify the big problems facing consumers.

This is because, in recent weeks, about 80% of complaints the CMA has received relate to cancellations and refunds.  Of those, the majority relate to

  • Weddings and private events
  • Holiday accommodation
  • Nurseries and childcare providers (excluding schools).

The CMA regards these areas as a priority but may expand its investigation into others in future.

If it determines that a business does not comply with the law it will take appropriate enforcement action.

Does the CMA make new law?

Absolutely not. It compiles evidence on the focus of its attention and relates that evidence to the law as it then stands. If, after due process, it considers the law should be changed, it publishes its recommendations in its interim or final reports.

In its announcement the CMA included a summary of its view on the law relating to refunds as it now stands. Briefly, that view is:

It would expect a full refund to be offered if a business has cancelled a contract without providing any of the promised goods or services, or a consumer cancels, or is prevented from receiving, any services because of the restrictions that apply during the current lockdown.

It accepts that there may be limited exceptions to the full refund principle in the cases of:

  • Delivery of some, but not all, of the contracted services, in which case a proportionate refund is permitted
  • Continuing contracts such as gymnasium subscriptions. If the consumer cannot use services because of government public health measures, then there would be a proportionate refund of annual fees paid in advance or the suspension of future instalments. If the contract terms so provide, the supplier may be entitled to a small contribution to its costs until services are resumed.

The CMA is of the view that non-refundable deposits are in fact refundable and no administration charge should be levied for processing refunds.

The CMA makes it clear that the consumer is under no obligation to accept credit notes, vouchers or rescheduling as an alternative to a refund.

The CMA implies, but does not specifically state, that some limited flexibility may be in order on time limits for refunds because of the unusual circumstances – a greater volume of claims coinciding with lay-off and furlough of personnel to process them. This is particularly the case in package holidays where the agent is usually dependent on refunds from its own supplier to finance repayments to the consumer.

Some contracts may require consumers to pay now for services they will receive in the future, after the current disruption has lifted. The CMA’s view is that a business should not seek payments for a service it knows it will be unable to provide.

Where the business reasonably expects to provide the service as agreed, the CMA’s view is that, in general, the business can require consumers to carry on making these payments for the time being.

If a consumer cancels a contract because they no longer want the service, even though the service can still be provided as agreed, the consumer will be entitled to a refund in line with the applicable terms and conditions (on the assumption those terms are fair) and relevant consumer law.

If people have been affected by unfair cancellation terms in wake of Covid-19, they can report them to the CMA using the online form available on the CMA website.

How does the CMA act?

The CMA must conclude a market investigation within 18 months (24 months in exceptional circumstances) from the date that the reference is made and usually publishes its provisional findings within 12 months.

The proceedings of the CMA must be closely monitored, the better to anticipate what changes in the law may be introduced and how the CMA reacts to breaches of the law as it now stands.