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FCA guidance on cancellations and refunds

15 March 2021. Published by Whitney Simpson, Senior Associate

COVID-19 disruption has caused an unprecedented number of cancellations of trips, holidays, and other events. On 2 April 2021, the temporary guidance which the FCA published in October 2020 setting out its expectations for insurance and card providers, is due to come to an end.

The FCA released a Guidance Consultation – Cancellations and refunds: helping consumers with rights and routes to refunds on 12 February 2021. This guidance is relevant to credit card and debit card issuers and insurance providers as well as consumer groups and its aim is to reduce potential consumer inconvenience and frustration while increasing consumer understanding. The FCA's guidance consultation seeks to extend this temporary guidance to take account of the continued disruption caused by COVID-19.  

The temporary guidance was introduced to address the complexities and delays consumers experienced in getting pay-outs from both card providers and insurance providers, and confusion in communications created by some insurance providers for not explaining adequately why consumers were being asked to contact their card providers before making an insurance claim. The FCA as part of this consultation is proposing that this guidance is to remain in force to account for ongoing uncertainty and the impact of further cancellations this year.

Consumers faced with a cancellation often find it hard to identify the best route to a refund and usually must decide between making an insurance claim or a section 75 claim.  A section 75 claim is a claim that can be made against your credit card provider (who is jointly and severally responsible) for breach of contract or misrepresentation by a retailer or supplier.  If a consumer is eligible for a section 75 claim with their credit card provider, this can often lead to a better outcome as insurance policies often have an excess and claim limits. However, there is potential for consumers to be inconvenienced and frustrated if their insurance provider asks them to check with their card provider before making an insurance claim, without explaining why they should do this and how it might lead to a better outcome. Additionally, a section 75 claim against a credit card provider might not always be possible.

The guidance aims to protect consumers who might suffer frustration and inconvenience when trying to get a refund for cancelled travel arrangements or events.  It builds on the FCA's Principles for Business: Principle 1 (Integrity), 2 (Skill, care and diligence), 6 (Customer interests), 7 (Communications with clients) and ICOBS 8.1. 

The FCA proposes that its extension of the temporary guidance will take effect from 2 April 2021 and is intended to remain in place during the exceptional circumstances arising out of Covid-19 until varied or revoked.

Insurance providers

The FCA expects insurance firms to treat their customers fairly and consider what is in the consumers' interest.  Insurers should take reasonable steps to minimise the possibility they refer customers to card providers where it isn't in the customer's best interest.  It is suggested that where appropriate, insurance providers could ask questions to clarify whether there may or may not be a basis for a section 75 claim.  Where there is no basis for a section 75 claim, insurance providers should not ask the customer to pursue a claim with its credit card provider. 

Where it is appropriate for a consumer to be referred to their credit card provider, insurers should take reasonable steps to ensure consumers understand why they are being referred e.g. outlining information on what section 75 covers. Insurers may also consider entering into arrangements with card providers to reduce the likelihood of instances where consumers are being passed between card providers and insurance providers. In complying with this guidance, insurance firms should ensure that they do not stray into the activity of 'advising' on the section 75 claim, where they may not have the appropriate regulatory permissions.

Credit and debit card providers

It is the FCA's expectation that section 75 (only applicable to credit cards) and chargeback claims (a mechanism for the card provider to recover money from the retailer/suppliers bank) should be handled in a reasonable timescale and the reason for any delays in processing claims should be explained to the customer. If the section 75 or chargeback claim is declined, the reasons for this should be explained to the customer clearly and fairly and further options should be laid out.  This might include checking to see whether the claim is covered by an insurance policy. 

What next?

The consultation closed on 26 February 2021. The FCA will consider feedback on the Guidance Consultation and will publish Final Guidance, depending on the feedback received. 

For full details click here.