CMA, businesses and failure to respect cancellation rights

Answer

The Competition and Market Authority’s (CMA) covid-19 taskforce update on 24 April 2020 revealed that its covid-19 taskforce had received a significant volume of complaints about unfair practices in relation to cancellations and refunds. On 30 April it released a further update setting out the programme of work it intends to undertake to deal with the issues raised. The CMA will act under its consumer protection powers, rather than under competition law, to deal with unfair practices relating to cancellations and refunds.

The CMA reports that four out of five complaints received by the taskforce concern cancellations or refunds, including businesses refusing to process refunds or forcing consumers to accept vouchers for holiday accommodation. Based on the complaints received, the CMA has identified the following three sectors as particular concerns:

• weddings and private events;
• holiday accommodation; and
• nurseries and childcare providers.

The CMA intends to tackle these three sectors as a priority but will also examine other sectors based on information the taskforce has received. The CMA has threatened that if it finds evidence that companies are failing to comply with the law, it will take appropriate enforcement action under its consumer protection powers, including court action, if a firm does not address its concerns. The CMA notes that individuals can also pursue legal action against unfair terms should they wish to do so.

CMA’s statement on consumer protection law in relation to cancellations

The CMA has also issued a statement setting out its views on consumer protection law in relation to cancellations and refunds during the covid-19 crisis.

For most consumer contracts the CMA indicates that, under consumer protection law, it would expect a full refund to be issued if any of the following scenarios occur:

• A business has cancelled a contract without providing any of the promised goods or services.
• No service is provided by a business – for example, due to the restrictions that apply during the current lockdown.
• A consumer cancelled or is prevented from receiving the service  – for example, due to the restrictions that apply during the current lockdown.

If a consumer receives regular services in exchange for a regular payment as part of an ongoing contract, the CMA considers that consumer protection law:

• will normally require the consumer to be offered a refund for any services they have already paid for, but that are not provided by the business or that the consumer is not allowed to use because of covid-19-related restrictions;
• will normally allow the consumer to withhold payment for services that are not provided by the business or that the consumer is not allowed to use because of covid-19-related restrictions; and
• may allow a business to require payment of a small contribution to its costs until the provision of the service is resumed, but only if the contract terms set this out clearly and fairly.

While the CMA acknowledges that consumers can normally be offered credits, vouchers, rebooking, or rescheduling as an alternative to a refund, the CMA warns that businesses should not mislead or pressure consumers to accept such options and should continue to make refunds clearly and easily available. Further, any restrictions that apply to credits, vouchers, rebooking, or rescheduling, such as the period in which credits must be used or services rebooked, must also be fair and communicated clearly to consumers.

The CMA suggests that its statement reflects its understanding of the law but notes that only the courts can determine how consumer protection law applies to cancellations and refunds.

John D Colahan is a partner at Latham & Watkins and Anuj Ghai is a litigation and trial associate at Latham & Watkins.