FCA Guidance Consultation on Cancellations and Refunds due to Covid-19

• United Kingdom

• Financial services disputes and investigations
• Insurance and reinsurance
• Litigation and dispute management
• Financial services - Insurance market

10-08-2020

Helping Consumers with rights and routes to refunds

Covid-19 has led to many cancelled events and travel plans. In June 2020 the FCA published statements to help consumers identify how they can attempt to claim a refund if they have had an event or travel plan cancelled, or if they haven’t received goods or services they were expecting, due to Covid-19.

The FCA also committed to publish further guidance outlining what it expects card providers and insurance firms to do when helping customers who are trying to claim a refund when they have been unable to do so from their retailer (such as the travel provider) or from the relevant guarantee scheme (such as ABTA).

The FCA has now opened a consultation to gauge industry opinions on its proposed guidance.

Who will the guidance affect?

The proposed guidance is primarily targeted at insurance firms, but it will also have an impact on card providers.

What is the aim of the proposed guidance?

Consumers may face inconvenience and confusion if their insurance provider asks then to check if they can claim against their card provider before making an insurance claim, but doesn’t explain why (or the potential benefits of doing so). In some cases, consumers will not be eligible for a refund from their card provider.

The aim is to ensure both insurance firms and card providers minimise inconvenience for consumers bringing claims for refunds for cancelled events or trips.

What does the guidance say?

To protect consumers against this inconvenience, and to minimise delay in dealing with claims, the FCA’s proposed guidance sets out the following:

Insurers

Insurance firms should take reasonable steps to minimise the possibility that they refer a customer to a card provider if this would not be in the customer’s interest (for example if the customer is unlikely to have a valid claim with the card provider). For example, this could include:

• Outlining to the customer what Section 75 does (and does not) cover
• Asking questions to assess if the customer is unlikely to have the basis for a claim under section 75 against the card provider
• Highlighting case study examples to help consumer decide what to do
• Considering arrangements with card providers to minimise claims being unfairly passed among firms

When asking customers to go to their card provider before making an insurance claim, insurance providers should explain why and explain the potential benefits of doing so. In addition, insurance claims should not be prohibited by unreasonable demands on the customer (for example, the insurance firm should not require a consumer to take more than reasonable steps to pursue a Section 75 claim where such a claim is unlikely to be valid).

Card providers

Credit and debit card providers should handle claims within a reasonable timescale.

If there are delays in processing claims, card providers should clearly explain the reason for the delay to the customer.

If a card provider rejects a claim, this should be communicated clearly and fairly to the customer.

If implemented, the proposed guidance could also lead to increased numbers of Section 75 claims from consumers affected by travel or event cancellations. Card providers should work with insurance firms to establish processes to reduce the risk of consumers’ claims being unfairly passed between firms. Proactive card providers and insurance firms should consider such arrangements together ahead of the implementation of the proposed guidance, to ensure that the FCA’s expectations are met.

What are the main issues with the proposed guidance?

The FCA has suggested that the proposed guidance is directed at circumstances where “the consumer may not be able to get a refund from the retailer”. However, it is not clear precisely what scenarios the FCA is referring to – where a retailer has ceased trading, or where the retailer has merely delayed in responding to a claim? Does the FCA intend this to cover situations where the retailer has rejected a claim based on a legitimate dispute as to liability? Further guidance is needed here. It is difficult to envisage that a Section 75 claim against a card provider will result in a better outcome for the consumer where there is merely delay on behalf of the retailer, or if there is a genuine dispute as to liability.

It is an over-simplification to suggest (as the FCA has) that Section 75 claims can often lead to better outcomes for consumers than claims under insurance, due to excesses under insurance policies. The criteria to be satisfied to make a successful claim under an insurance policy may differ to the criteria to be satisfied under Section 75, such that the thresholds for making a successful claim are not necessarily comparable. Furthermore, the losses that can be recovered under Section 75 will be limited in accordance with the interpretation of the Act and the rules of causation for breach of contract, whereas different considerations may apply under insurance policies.

The proposed guidance appears to suggest that insurers are required to make an assessment of whether consumers would be better placed to make a claim under Section 75 than under their insurance policy. It is unclear how an insurer could reasonably be expected to make such a determination. The requirements of Section 75 are complex, claims require assessment on an individual basis, facts may be unclear and card providers often invest considerable time and expense determining the validity of Section 75 claims. There is the risk that the FCA’s proposed guidance will result in insurers re-directing claims, rather than assessing claims under the policy on their merits, when consumers may receive no more favourable outcome, or a less favourable outcome, under Section 75.

When will the guidance be implemented?

The consultation period closes on 13 August 2020. Responses to the proposed guidance should be sent to cancellationsandrefunds@fca.org.uk. Final guidance will be published by the end of September 2020.

Following the publication of the final guidance, the FCA intends that the provisions will be effective for six months.

To find out more please contact Martin Ward (Partner), Katie Fisher (FSDI Associate) or Charlotte Adams (FSDI Trainee Solicitor).