What businesses need to know about consumers’ rights to obtaining a refund when a contract is cancelled due to the COVID-19 pandemic

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The Competition and Markets Authority (CMA) has received thousands of complaints regarding unfair business behaviour due to the COVID-19 pandemic. Many of these deal with issues arising as a result of contracts being cancelled and managing refunds.

What does this mean for businesses?

Consumers have both statutory and common law rights in respect of their purchases of goods, digital content and services. Consumers’ statutory rights are set out in the Consumer Rights Act 2015 (CRA) and the Consumer Protection from Unfair Trading Regulations (CPUT), which prohibits unfair commercial practices by businesses towards consumers, at any point in a consumer transaction.

The CMA can prosecute traders for breaches of consumer protection law, insofar as these are offences, or consumers can apply to Court to enforce their statutory rights, for example to a refund, under the CRA.

If you have a contract with a consumer which has been cancelled, there are several issues to look out for regarding refunds:

  • If the business cancels the contract, it will most likely be expected to provide the consumer with a full refund if it has not provided any of the goods or services;
  • If the business was prevented from providing the goods or service due to government public health measures, it will most likely be expected to provide the consumer with a full refund;
  • If the customer cancels a service or is not allowed to receive a service due to government public health measures, the business will most likely be expected to provide the consumer with a full refund.

In certain instances, a partial refund may be permissible, such as if part of the services was performed or, in very limited circumstances, where a contract has been ‘frustrated’ due to government public health measures.

Businesses should be aware that the CMA considers that consumers’ rights to refunds will apply even if the business has stated that any deposit or advance payment is non-refundable. Additionally, it is of the view that businesses should not charge an administrative fee (or equivalent) for processing such refunds due.

The CMA taskforce is continuing to monitor such activity. It is particularly concerned about firms refusing refunds; introducing unnecessary complexity into the process of obtaining refunds; charging high administration or cancellation fees; and pressuring consumers into accepting vouchers instead of cash refunds.

For any further information about how to deal with consumer contracts, please get in touch with us.