CMA launches an investigation into Covid-19 related cancellation and refund practices by consumer-facing businesses

United Kingdom

Around six weeks after launching its COVID-19 taskforce to deal with competition and consumer issues arising from the coronavirus pandemic, on 30 April 2020 the Competition and Markets Authority (“CMA”)  launched an investigation and issued guidance for consumer-facing businesses in relation to refunds during the pandemic.

Since initially launching their investigation, CMS can report that the CMA has subtly amended its press release without issuing a correction or publicising their amendments.  The CMA has removed the phrases ‘consumer rights cannot be ignored’ and ‘individuals can also take their own legal action against unfair terms’, which have already been reported in the press.  CMS is unsure why the CMA has departed from using these phrases but it may be of dramatic importance to both consumers and businesses.  Individuals certainly retain the right to take their own legal action, but the CMA may now be recognising the length of time and challenges individuals could face when taking this approach, particularly during the current lockdown. The CMA’s updated press release now states that ‘consumers deserve to have their rights protected’.  This softer choice of language could signify that the CMA appreciates that consumer rights are not an absolute right but may sometimes be qualified by competing legal rights or interests. This is particularly pertinent to those circumstances where the CMA acknowledges that partial refunds may be appropriate.  We will explore this, together with the rest of the guidance and investigation, further below.

Complaints received by the CMA

The guidance and investigation relates to the complaints received by the CMA’s COVID-19 taskforce. The CMA recently reported that it had received almost 21,000 coronavirus-related complaints between 10 March and 19 April 2020. Whilst initial complaints mostly related to price rises (particularly for essential goods such as hand sanitiser), concerns around cancellations and refunds are now predominant. These include complaints relating to businesses refusing refunds, introducing complexity or delay into refund processes, charging administration or cancellation fees, and pressuring consumers into accepting vouchers instead of refunds.

The sectors targeted by the CMA

The CMA has identified three sectors which it intends to tackle as a priority: weddings and private events, holiday accommodation, and nurseries and childcare providers. This is unsurprising given recent news reports. We are all familiar with stories of unfortunate couples being charged in full for their cancelled weddings; holiday accommodation providers insisting on vouchers instead of refunds; and many closed nurseries expecting parents to pay a proportion of fees.

As the investigation progresses and further information is received by the taskforce, the CMA may examine other sectors. Some possible sectors that come to mind include the leisure and entertainment industry and private schools.

The CMA’s enforcement position

The CMA acknowledges the current ‘unprecedented circumstances’ but notes that ‘consumers deserve to have their rights protected’ (departing from its original wording of ‘consumer rights cannot be ignored’, as discussed above). It is prepared to take appropriate enforcement action, including via the courts, if businesses fail to comply with the law.

The CMA’s guidance

The CMA considers that generally businesses should offer consumers a full refund where:

  • the business cancels a contract without providing the relevant goods or services;

  • services have not been provided (for example, due to Government public health measures); or

  • a consumer cancels or cannot receive the services because of Covid-19.

The CMA considers that refunds should apply even if a service is described as ‘non-refundable’, for example a hotel booking. 

The guidance does not detail the specific laws which mandate refunds. These will depend on the circumstances and are not always clear-cut. In some cases, consumers will have statutory rights to a refund, for example under the Consumer Rights Act 2015. Where such rights do not apply, the consumer may be entitled to a refund under the applicable terms and conditions or, alternatively,  where terms and conditions which deny  a refund are unfair – and therefore unenforceable – under the unfair terms provisions of the Consumer Rights Act 2015. Indeed, the CMA’s Unfair Terms guidance makes it clear that businesses should not make the consumer its insurer or expect the consumer to bear the risk of businesses going insolvent.

However, the CMA does envisage certain circumstances where a partial refund may be appropriate. These include scenarios where the consumer has already received some value. For example, where a consumer had enjoyed part of a two week holiday which was curtailed due to Covid-19. Also, where a business has incurred some costs, the business may be able to deduct a contribution towards such costs from the refund due to the consumer where it cannot recover the costs from elsewhere. It is conceivable that many businesses may have irrecoverable costs in respect of which they may wish to deduct a contribution from refunds. However, businesses should ensure they have a strong case with respect to such deductions; the CMA considers that these kinds of cases are likely to be ‘rare’ and the deductions will ‘usually be limited’. No specific examples are given by the CMA, so it is difficult to know when deductions could be safely made. Whilst not specifically stated by the CMA, we believe that the CMA’s guidance here is based on the doctrine of frustration which arises where a contract becomes impossible to perform. However, there are discrepancies between the relevant legislation on frustration and the CMA’s guidance. There is also considerable uncertainty as to how the (somewhat venerable) law of frustration would mesh with (rather modern) consumer law.  However, in some circumstances, it may be that the doctrine of frustration gives  a business some legal basis for retaining expenses incurred, although the ramifications of running such an argument would have to be considered carefully.

In terms of the refund process, the CMA acknowledges that it may take longer to process refunds, but businesses must still ‘take into account’ statutory deadlines, and must not apply admin fees to refunds. It will be interesting to see if the CMA takes enforcement action regarding a business’ failure to comply with statutory deadlines.

It remains open to businesses to offer consumers credit notes or vouchers as an alternative to a refund. Some businesses offer incentives for consumers to accept vouchers, for example by offering vouchers which exceed the amount originally paid by the consumer. However, the CMA makes it clear that a cash refund should still be easily available to consumers and any restrictions on the use of credits and vouchers must be fair. For example, requiring consumers to re-book their holiday within a limited timeframe could be unfair. Businesses should also avoid misleading or pressurising consumers into accepting vouchers instead of refunds – doing so could represent a criminal offence under the Consumer Protection from Unfair Trading Regulations 2008.

Finally, the CMA warns that businesses should not seek payments in respect of services that it knows it cannot provide due to Covid-19. This warning suggests that, for example, a holiday accommodation provider should not insist on a consumer paying the balance if their holiday is booked to take place in the near future.


The CMA’s investigation is a clear statement of intent that unfair practices in relation to cancellations and refunds will not go unnoticed. Even in these unprecedented times, the CMA is clear that businesses must respect consumer law and not make the consumer their insurer.

This position can be contrasted with that adopted in some other European countries where – in respect of certain industries - consumer rights appear to have taken a backseat.  For example, in the events and holiday accommodation industries, some European countries have allowed organisers to provide consumers with vouchers instead of refunds.

Unfortunately the economic reality for many businesses is that the obligation to refund large amounts, with no cash coming in, will be disastrous. Businesses may prefer to focus on survival now and worry about regulatory consequences and consumer complaints later. The CMA’s position also means that pressure is back on the Government to provide additional support or a temporary relaxation of the law whilst the pandemic continues.

For assistance on this or any other consumer law issue, please do not hesitate to contact one of our specialists.