The Competition & Markets Authority (CMA) were quick to advise suppliers of goods and services what their obligations are when it comes to cancellations and refunds in light of the UK lockdown in March. Now the UK is in its third national lockdown it is likely the CMA guidance will continue to be revised.
We’ve provided some guidance on how suppliers should deal with consumer’s advance payments, refunds and cancellations during this uncertain period.
When do suppliers have to offer a full refund?
The CMA’s view is that a full refund will usually need to be given when services/goods cannot be provided in response to lockdown laws, even where the business’ terms and conditions state that part of the payment is a non-refundable deposit or advance payments are made.
This is bad news for suppliers in the time where “cash flow is king”, – the principle applies that it would be considered unfair that monies are retained for services/goods which cannot be provided.
Under what circumstances can suppliers retain monies paid by consumers?
1. If the contract cannot go ahead at all due to lockdown laws.
A full refund will usually need to be given in this scenario. Where lockdown laws prevent you from providing a service, businesses may deduct a contribution to costs already incurred in relation to a specific contract (where it cannot be recovered elsewhere). This will depend on the sector and nature of the service being provided. CMA has provided specific guidance for some industries on when this will apply.
2. If the contract is ongoing and will resume once lockdown laws are lifted.
Consumers will normally be entitled to withhold payment for the period that the services that are not provided. The CMA do accept in practice, businesses and consumers can reach an informal agreement to continue to provide payments so long that it is mutually acceptable and that consumers are not left in a worse position.
Businesses may require consumers to make a small contribution to its costs until the provision of the service is resumed. The CMA states businesses can only rely on this where the contract terms or their terms and conditions set this out clearly and fairly, and the consumer is free to end the contract if they do not wish to pay these fees.
3. Accepting advance payments for performance of future contracts.
As it it currently unknown when we will come out of lockdown, it is advised that suppliers should not seek payment for a service in advance when they do not know if they are able to provide the service.
4. If businesses can provide services/goods, but the consumer cannot go ahead.
This very much depends on the circumstances. If a consumer cannot go ahead due to following government guidance that contain legal restrictions, it could be found that consumers would be entitled to a refund.If the contract could go ahead, but a consumer decides simply not to go ahead, suppliers can refer to their terms and conditions on cancellation and refunds. i.e. cancellation fees will apply as long as they are fair and accurately reflect the losses a supplier will incur as a result of the cancellation. Again, the cancellation clause will have to be reflective of the costs loss as a result of the cancellation.
How can suppliers survive lockdown 3.0?
1. Check your terms and conditions – what options do you have available when it comes to cancellation/termination/rearrangement of contracts? What services/goods have you provided (if any) and consider what costs have been incurred so far? If your terms and conditions are not favourable and require amendment, do they contain variation clauses to allow you to do this?
2. Check your business interruption insurance policies – what losses can be claimed as a result of lockdown laws? Read our guide on making a claim on your business interruption insurance policy.
3. What steps can you take to mitigate any further losses in the event of future lockdowns? Do your terms and conditions need amending to help? Do you need to take out further insurance policies?
4. Have conversations with your customers – Whether consumer customers have to pre-pay for services i.e. electricity meters, school fees etc. the CMA does not object to a small contribution being paid by consumers to the costs of upkeep of a service until the service can be resumed. See whether customers are willing to do this.
5. Offer alternatives to refunds in your terms and conditions: credits, vouchers, re-booking or re-scheduling as an alternative to a refund. Whilst it is imperative that consumers are given the right to a refund, by clearly listing alternatives this may help retain future services and maintain cash flow.
The important theme running throughout consumer law generally and the CMA guidance is consumer rights must be fair and they must not be misled about their rights.
Whilst the CMA only provide their views on how the law operates, suppliers should take these views seriously, not only for management of their contracts through the pandemic but because their views on how the law operates is relevant.
The consumer laws are favourable to the consumer, but the important points for suppliers to take away is to ensure they have conversations and work with their consumer customer base to ensure whether cancellation of contracts is due to lockdown laws or other reasons.
If there is no lockdown law/government regulation preventing contracts going ahead, suppliers should be able to negotiate cancellation fees and retention of deposits on their own terms and conditions, so long as these are fair and reasonable.
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