Recent lessons on refusing refunds in the travel sector

United Kingdom

With the summer holiday season long gone and the peak of the winter holiday season fast approaching,over the past few months the Consumer Law regulator (the Competition and Markets Authority (“CMA”)) has published details of its agreements with a number of holiday companies as part of its investigation into the package holiday sector in light of COVID-19 related cancellations.

We explored in a previous article the circumstances in which package holiday providers may lawfully resist cash refunds for consumers. We also suggested in that article some of the lawful alternative options to refunds that holiday companies can explore. All of these remain relevant, but in this article we outline some of the key lessons from the CMA’s approach in its more recent engagements affecting tens of thousands of consumers, and what that means for holiday companies going forward.

  • It remains the case that holiday companies can offer alternatives to full refunds, which in many instances provide both the company and the consumer with a better outcome. This might include vouchers, discounts, credit notes or holiday upgrades worth more than the cash refund and is explored further here.

  • The approach on strict statutory time limits (14 days to provide a refund) does appear to be softening in practice, as we predicted in our previous article on refusing refunds. Clearly many consumer facing businesses continue to be under an enormous amount of pressure are simply not in a position to provide full refunds to consumers overnight. In a number of the agreements published, periods far in excess of the statutory 14 day limits have been agreed in order to address the backlog of refund claims, with tighter timeframes then being introduced at a specific date in the future.

  • Human error in processes will not necessarily lead to an immediate threat of regulator action, particularly where reasonable efforts are being made. Whilst clearly not a complete defence to any consumer law breach, efforts to show that steps are taken promptly to address any errors once identified are likely to assist.

  • The better the processes in place and the more effort made by businesses to address concerns up front, the better the outcome is likely to be with the regulator. This certainly does not ring true across all investigations, but the trend with the reported agreements in the package holiday investigation seems to be that the more effort that holiday businesses are shown to have been, the more flexible the regulator is.

  • Terms applicable to alternative options, for example credit vouchers, need to be carefully thought through in advance. For example, if offering credit vouchers which are redeemable for cash following an expiry period, pro-active steps may need to be taken to ensure refunds are given when the credit voucher expires. Providing a longer expiry period may well alleviate the need to offer a refund in the shorter term.

  • Cancellation fees are going to be an area of continued challenge where the consumer would otherwise generally be able to obtain a refund, although outside of the package holiday sector there is a lot more room for argument.

  • The recent agreements are also a continued reminder that the initial agreement is just the start – ongoing monitoring and reporting is increasingly becoming a feature of consumer investigations and, in our experience, it is critical to get the precise terms and scope right in order to allow businesses to focus on their core activities, rather than the distraction of continued engagement from regulators.

These recent agreements are a reminder that the CMA does not treat businesses equally. The relevant consumer laws in this area and the obligations under The Package Travel and Linked Travel Arrangements Regulations 2018 are complex, with real scope for different outcomes for each and every business. Having the right team and approach in your engagement with the CMA is therefore critical.

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