Cancellations, refunds and contract terms: Corporate & Commercial Solicitor Rebecca Sewali explores how consumer rights have been affected by Covid-19 as well as service providers, and what the latest measures are to help you navigate.
The Financial Conduct Authority (FCA)
The FCA have responded to the financial implications of COVID-19 to ensure customers are protected and markets continue to function well. On 16 September 2020, The FCA announced their proposals on the next steps for consumers with overdrafts and consumer credit products. (See here for more information)
The proposals supplement temporary guidance published in July 2020 that will expire on 31 October 2020. The proposals sets out the FCA’s expectations of firms dealing with consumers who have benefited from payment deferrals and support with the cost of their overdrafts under the July guidance who continue to face difficulties, as well as those whose financial situation may be recently affected by COVID-19 after the expiry of the July guidance. The deadline for comments on the proposals recently passed (21 September 2020) and we will continue to monitor the situation as it develops.
The FCA’s guidance does not apply to private banks and credit unions.
Winter Economy Plan
On 24 September 2020, The Chancellor of the Exchequer announced plans to extend the Treasury’s UK-wide programme of business support loans until the end of November 2020. The decision is designed to provide certainty to businesses impacted by COVID-19 and assist companies hit by further restrictions.
The government has also announced it will extend the temporary 15% VAT cut for the tourism and hospitality sectors to the end of March 2021. Furthermore, up to half a million businesses who deferred their VAT bills will be given the option to pay back in smaller instalments as opposed to paying a lump sum in full at the end of March 2021. They will be able to make 11 smaller interest-free payments during the 2021-22 financial year.
The Competition and Markets Authority (CMA)
The CMA has issued further guidance on consumer cancellations and refunds during COVID-19 (see here for more information at gov.uk)
Consumers will generally be entitled to obtain a refund where they have paid in advance for goods or services which have not been provided. Businesses should not require consumers to take unreasonable or unnecessary steps to obtain refunds. A business imposing such barriers may breach consumer protection law. The CMA appreciates that refunds may take longer than usual but would expect this to be communicated to consumers.
Limited exceptions to refunds
There are limited exceptions to full refunds where a consumer has already received some of the services they have paid for in advance. There may also be instances where the consumers own actions have led to their inability to receive goods or services and therefore arguably, allows businesses to state that a full refund should not be provided.
In some cases, where lockdown laws prevent a business from providing a service or the consumer from receiving it, the business may be able to deduct a contribution to the costs it has already incurred in relation to the specific contract in question (where it cannot recover them elsewhere). The CMA considers these cases to be relatively rare and the costs that may be deducted from refunds are likely to be limited.
In relation to ongoing contracts, the CMA is unlikely to object to the parties seeking to reach an arrangement that is mutually acceptable in the circumstances, provided that consumers are not left in a worse position where they have sought to find a resolution in this way.
Alternative to refunds
Consumers can usually be offered credits, vouchers, re-booking or re-scheduling as an alternative to a refund, but they should not be misled or pressured into doing so. A refund should still be an option that is clearly stated and easily available.
Amending terms in existing contracts
Businesses may attempt to include “variation clauses” to amend the terms of contracts and ensure that they cover issues arising from COVID-19. However, businesses must ensure that variation clauses are not deemed to be unfair and unenforceable under Part 2 of the Consumer Rights Act 2015.
Terms in new contracts
If businesses, choose to redraft their standard contracts to include provisions relating to COVID-19, they must ensure that the terms are not deemed unfair and unenforceable (i.e. not preventing consumers from obtaining refunds in circumstances where lockdown laws mean that a contract cannot be performed as agreed). Provisions relating to cancellation, refunds and COVID-19 must be clear and appropriately brought to the consumer’s attention prior to entering into a contract.
Cancellation relating to Government guidance
The CMA recognises the difficulties in dealing with situations where a service can legally be provided as agreed but a business or consumer does not want to go ahead with the contract. This will be considered on a case by case basis. Businesses may be able to treat cancellations by consumers due to non-binding government guidance as cancellations outside the scope of the rules relating to refunds mentioned above.
In summary, the current circumstances can often change at a speed at which we cannot anticipate. As the situation evolves, there may be further guidance issued to assist businesses and individuals impacted by COVID-19 and we will keep this under review.