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Freshfields Risk & Compliance

| 4 minutes read

Trouble and strife – UK's CMA makes it easier for consumers to get COVID-related refunds

The UK's Competition and Markets Authority (CMA) today published further guidance from its Covid-19 Taskforce, set up in March to identify, monitor and respond to competition and consumer concerns arising from the coronavirus pandemic. It has flagged particular concerns in three sectors: weddings and private events, holiday accommodation and nursery/childcare provision. 

While these markets will be prioritised for investigation, the CMA's guidance offers insights of general application into how it will seek to regulate the non- or partial performance of consumer contracts in the current climate, and sets out the circumstances in which businesses will be expected to offer refunds or other forms of compensation.

We take a brief look at the key issues further below. But first, a recap of how the CMA has approached the coronavirus crisis to date.

What steps has the CMA taken so far?

The CMA has issued guidance that it will take a pragmatic approach to the enforcement of cases concerning necessary business cooperation to meet the coronavirus crisis. But it has been clear that any latitude it is willing to extend is bounded by established antitrust principles governing exemptions to the competition rules (there is no coronavirus-related 'free pass'), and strictly limited to the current crisis. 

At the same time, it has also been quick to acknowledge the risks to fair competition and consumer welfare that the crisis poses. Back in early March, its Chairman, Lord Tyrie, laid down a marker that the CMA would do 'whatever [it] can to act against rip-offs and misleading claims' during this period, and subsequent messaging has emphasised the regulator’s willingness to enforce the law against businesses found to have engaged in exploitative practices.

While the CMA has stressed that most businesses are behaving responsibly and fairly, a report published last week by the Covid-19 Taskforce found that almost 21,000 complaints about coronavirus-related issues were made to the CMA between 10 March and 19 April 2020. 

Most of these fell into two broad categories:

  1. complaints about price increases, particularly for essential goods such as food products and hand sanitizer (in respect of which consumers reported a median price rise of 367 per cent); and
  2. practices in relation to cancellations and refunds.

And that’s where today’s guidance comes in.

When is a refund required?

The CMA has made clear its view (PDF) that, when a contract is not performed as agreed, consumer protection law will generally allow consumers to obtain a refund. In particular, in the CMA’s view, businesses should offer full refunds when they cancel contracts without providing any of the promised goods or services, and should also do the same when consumers cancel or are prevented from receiving the goods or services in question (eg due to the restrictions that apply during the current lockdown).

Advice is also given to businesses preferring alternative forms of refund, such as credits, vouchers, re-booking or rescheduling: the CMA makes clear that these are permissible, but – in its view – only as an alternative to a refund, and in circumstances where consumers are not misled or pressured into accepting them. Any restrictions on how consumers use those alternatives must be clear and fair.

This advice is apparently directed in particular towards businesses offering weddings and private events, holiday accommodation, and childcare services – all of which have been explicitly identified by the CMA as 'sectors of particular concern'. Given the CMA’s focus on responding to the COVID-19 crisis (and its desire to show that it is taking consumer protection seriously while it waits for the UK government to issue its long-awaited consumer white paper and to offer it the new consumer enforcement powers that it has requested), businesses operating in these sectors should take note. Investigations and potentially enforcement action may well follow.

The guidance is also relevant to other consumer-facing businesses. Although the word 'generally' is liberally used throughout the guidance, when describing the CMA’s view of traders’ obligations, it is clear that it thinks consumers should get a refund where a product, service or event is not delivered as agreed.

Will lawsuits follow?

On the other side of the Atlantic, claimant lawyers have reportedly been quick to commence class action litigation against a variety of service providers who have sold services which have been cancelled or which cannot be accessed due to the current crisis, and where refunds have not been offered. In California (which has particularly generous consumer protection laws), claims have been brought against gym companies, music festival operators, travel companies and more.

Claimant law firms and litigation funders on this side of the pond will be looking for similar opportunities to bring group claims, with an eye on forcing quick and easy settlements. The CMA’s guidance may make it easier for them to argue that businesses which are not offering refunds have breached their legal duties. This of course ignores the fact that the rules in this area are complex, and there may be good reasons why traders have not refunded consumers.

The risk of litigation of this sort will be particularly acute for businesses which are the subject of successful enforcement action by the CMA or other regulators. In those circumstances, unless consumer redress forms part of the remedies agreed with the trader or ordered by the court, follow-on group litigation may be likely.

Is there anything else that businesses need to be aware of? 

In connection with its investigations into price increases faced by consumers, the CMA is also collecting evidence of price rises further up the supply chain, and is known to have written to almost 200 businesses for further information about such upstream concerns. 

So while the present focus lies elsewhere, it should not be assumed that B2B suppliers are beyond the reach of the CMA’s long arm, either from a consumer protection, or potentially an antitrust, perspective.


consumer protection, antitrust and competition, litigation, europe, covid-19