CMA guidance to businesses unable to fulfil customer contracts due to coronavirus

1 May, 2020

Updated as of 1 May 2020

The Competition & Markets Authority (CMA) has published its views on consumers’ rights in connection with contracts affected by the coronavirus.

This guidance will be of particular interest to businesses in the travel, leisure and childcare sectors but will affect any business which has a consumer contract which cannot be performed as a result of the coronavirus.

Whilst businesses grapple with the enormous cash flow impact of the coronavirus – how to deal with consumer contracts where goods or services cannot be provided due to the coronavirus is a massive issue. Industry bodies are pushing for leniency, allowing a way through to help businesses stay afloat, whilst conversely and unsurprisingly consumer groups push hard for the protection of consumers and the right to full refunds.

Many businesses have already taken steps to address cancelled contracts. Some are holding back on refunds completely or making the process so evasive as to practically deny a refund.  Many are offering vouchers or credit notes in place of refunds whilst some have, often backed by positive PR campaigns, granted unequivocal refunds.

The CMA’s guidance has confirmed that consumer protection law will generally allow consumers to obtain a full refund. They suggest this applies where:

1) a business cancels the contract without any goods or services being supplied;

2) no service is provided because, for example, it is prevented from doing so by Government measures;

3) a consumer cancels because they can’t receive the goods or services due to Government measures.

There are some limited exceptions where part of the goods or services have already been provided, in such circumstances a reduced refund is suggested in connection with the goods or services the consumer did not receive.    

The CMA also comes out in favour of the consumer in situations where non-refundable deposits or advance payments are made – it considers that the right to a refund should capture all such amounts. 

The CMA recognises the place that credits and vouchers have to play in this unprecedented contract default scenario – however it makes it clear that consumers should not be misled or pressured into taking a voucher and that the option of a refund should remain clear throughout the process.

As an acknowledgement of the massive pressure businesses are under, some limited leeway is given to business in terms of the timing of refunds however the CMA still requires that refund timelines remain transparent and reasonable.

If it finds evidence that companies are failing to comply with the law the CMA may take appropriate enforcement action, including moving to court if the non-compliance is not remedied. Equally individuals are also free to instigate their own legal action, whether themselves or as part of a class action where non-compliance persists.

All in all, whilst not unexpected, the CMA’s statement is a further blow to businesses who, feeling bruised by a largely unsupportive insurance sector and underwhelmed by a banking sector which is making financial support harder than it was hoped, had remained hopeful for a different stance being adopted by the CMA to ensure that the economic pain and fall out from the coronavirus was shared more evenly across all sectors.