By Novation Consulting
In this article, we will look at how the Consumer Protection Act (the ‘CPA’) applies to all the booking cancellations and demands for refunds a result of the COVID-19 pandemic. This article was written for ASATA members to help them navigate this minefield. We will discuss:
- Consumer rights in a nutshell.
- Some practical advice on what travel agents should and shouldn’t do.
- What the legal arguments are (for the legal advisers reading this article).
There is no better way to start this guideline than with the words of the Consumer Goods and Services Ombud (the CGSO) herself:
‘While it is the view of the CGSO, based on its interpretation of the spirit and intent of the Consumer Protection Act (CPA), that consumers have a right to a full refund in these circumstances – if a postponement is possible, we urge consumers to rather take this option rather than request a refund to minimise the impact on suppliers who are also not at fault.’ – Magauta Mphahlele
If this seems complicated, it is because it is
COVID-19 is putting contract law and the CPA to the test in ways that legislators never imagined. This means that there are different interpretations out there and no rule book to play by.
In addition, the following variables can have an impact on what rights the consumer has:
- whether the travel service provider is in South Africa or not,
- who the consumer contracted with (the agent or the travel service provider),
- where the terms & conditions were concluded, and
- what is in those terms & conditions.
Complexity is no good in a crisis, so we have kept it simple. We will tell you how the CGSO is interpreting the CPA and give you some practical advice on what to do and what not to do. Please check in with your own legal advisors before you adopt any formal policies – your situation might require something different.
1. Consumer Rights in a nutshell
|If there is a travel ban (the trip is impossible)||If there isn’t a travel ban (the trip is still possible, but the consumer wants to cancel)|
|Consumers are entitled to be refunded or to be offered an alternative. This means that the travel service provider and agent can offer them a postponement or credit instead of cash. |
The consumer will not always be entitled to insist on a cash refund – there must be a reason why a postponement is unacceptable to that particular consumer. For instance, if the consumer was travelling for a specific reason on a specific date (e.g. to attend an event) it might be reasonable to refuse a postponement.
You cannot have a blanket policy, each case must be considered on its merits.
|Consumers are entitled to a cash refund, but the travel service provider and agent are entitled to charge a reasonable cancellation penalty. A postponement or credit can be offered, but if the consumer insists on cash they are entitled to it. |
You cannot have a one-size-fits-all cancellation penalty. You are required to consider factors like:
* the nature of the services
* the length of the notice of cancellation
* the direct financial cost incurred by the travel service provider or agent making the booking for that consumer
* the average administrative costs involved in making a booking.
However, you may not charge a cancellation fee for a booking if the consumer cancels or doesn’t show up due to the death or hospitalisation of the person for whom the booking was made. This should be kept in mind if a consumer cancels due to testing positive for COVID-19 and consumers being placed under quarantine.
2. What should travel agents do?
We recommend that ASATA members and their legal advisors come up with a simple strategy on how to handle consumers’ individual cases and queries – if it can’t fit on a page, it is not simple enough. We have given our thoughts (and the thoughts of the CGSO) in the rest of this article, but in the end, it is up to each ASATA member to decide on their COVID-19 policy.
Here are some things you should consider:
- Document (for example, in a policy or statement) your approach to refunds versus the calculation of cancellation fees. It can’t be a blanket policy, but give guidelines on how you will approach it.
- Document how you calculate your cancellation fees – the CGSO might ask you how you got to the amount. See section 5 (below) for some guidance.
- Create scripts for your consultants so you can ensure a consistent approach.
- Decide how you will handle it when a travel service provider is not adhering to the CPA – are you going to refund anyway? If you can’t afford to do that, advocate for the consumer and keep a record of all your attempts to get them their refund. If you don’t have success, tell consumers that they can approach the CGSO (www.cgso.org.za) to make a complaint.
- Consider incentivising the consumer to accept a postponement. You are allowed to do that – at least some consumers will be happy with that.
- You can keep your original fee for making the booking. You did the work after-all!
- If you have agreed in your terms & conditions for a charge for processing cancellations you can charge it.
- Keep an eye out for media statements and articles by the CGSO and consumer rights activists. Here is a podcast with Pippa Hudson, Wendy Knowler and the CGSO: http://www.capetalk.co.za/features/211/consumertalk-with-wendy-knowler/378185/covid-19-cancellations-a-blanket-no-refunds-policy-is-against-the-law-ombud
- Remember that customers will remember and reward you in the future for good service now.
- Look after your consultants. This is a difficult time at home and at work and mental exhaustion is an ever present danger.
3. What should travel agents absolutely not do?
There are two things that will get you into hot water:
- If the travel service provider decides to refund in cash, you MUST pass that refund onto the client. It is not your money!
- Don’t have a blanket policy. Your policy should allow for some discretion to make it possible to assess each case on its merits.
4. What does the law actually say? (This section is for the legal advisors)
4.1. If there has been a travel ban
In this scenario, where we are dealing with a travel ban or a travel service provider has cancelled a flight, the contract with the travel service provider has become impossible. This means that the customer is entitled to get a full cash refund from the travel service provider unless the travel service provider has offered the customer a ‘comparable’ alternative. A lot of travel service providers are offering customers postponements or credits as an alternative to a cash refund. If a customer insists on a cash refund, the travel service provider would have to show that the customer is being unreasonable. The point is that this has to be considered on a case by case basis – the travel service provider cannot have a blanket policy.
The CGSO has pled with consumers to be reasonable when considering whether to accept a postponement or credit due to the fact that both consumers and travel service providers are victims here.
Which part of the CPA does this come from?
The CGSO is of the view that section 47, which relates to over-selling and over-booking applies to this situation. Whether this is the case, is of course debatable. If it doesn’t, the principles of supervening impossibility will apply. While the terms & conditions of the travel agent and the travel service provider cannot deprive the consumer of their rights in terms of the CPA, they may contain provisions that will dictate what must be offered to the consumer.
4.3. If there has NOT been a travel ban
If there hasn’t been a travel ban, but the consumer wants to cancel, section 17 of the CPA will apply. This section gives the consumer the right to cancel any advance booking or order. However, the travel service provider and agent have the right to charge a ‘reasonable cancellation penalty’.
The CGSO has stated specifically that in terms of the CPA, a supplier is not allowed to apply a ‘blanket no-refund policy’, because this would be an ‘unreasonable charge’ in terms of the CPA. The consumer will always have a right to cancel, and in the event of this, the supplier must engage with the customer about their options going forward (i.e. do they want a refund or to postpone their booking for another time). The consumer always has a choice about whether they opt for a refund or a postponement of their booking.
The CGSO has issued a guideline on cancellation policies for suppliers and consumers which can be found here. The guideline was not written with COVID-19 or the travel industry in mind but provides useful guidance nonetheless.
The CGSO’s note details that any industry guidelines to suppliers as to appropriate cancellation policies should include:
- that the cancellation policy be appropriate to the type of service offered, with regard to the likelihood of being able to, with diligence, rebook the venue/service;
- that any deposit taken be fair and reasonable and proportionate to the loss that a supplier is likely to suffer if the event/service is cancelled;
- that provision is made for a stepped scale of forfeiture of a percentage of the deposit in proportion to the length of notice given, subject to the proviso that, in the event of the venue/service being rebooked, the consumer will only be charged an administrative fee based on actual costs.
When a consumer pays a deposit for an advanced booking, this deposit is not meant to enrich the supplier in the event that the consumer cancels. Rather, any portion of that deposit which the supplier keeps as a ‘reasonable cancellation penalty’ must be justified and substantiated through actual time spent and financial costs by the supplier on facilitating the initial booking.
The CGSO suggests in this guideline, that for the wedding industry, in order to prove their cancellation charge as justified, suppliers in this industry should be able to show what direct costs they incurred as a result of the cancellation. Such examples of costs to calculate to reach a total amount include the time spent with the consumers (the couple getting married in this instance), an apportionment of costs of marketing and administrative costs.
4.3. Do travel agents have to refund the customer their fees?
No. Whether there is a travel ban or not, the travel agent has already performed a service and should be paid for that.
4.4. Can travel agents charge a fee for cancelling the booking?
It depends on what was agreed with the customer. If you agreed upfront that a fee would be payable for changes to the booking, you can still charge that fee.
If there is no agreement about cancellations, the travel agent can try to conclude a new agreement with the customer for the subsequent cancellation, or deduct it from the refund as part of the reasonable cancellation penalty (if there isn’t a travel ban). Just be careful, you mustn’t do anything that makes it look like you are exploiting the situation.
4.5. Airlines often have non-refundable tickets – is that legal?
Strictly speaking, that has never been legal. Consumers always have the right to cancel (for no reason) in terms of section 17. All the airline is entitled to do is charge a reasonable cancellation penalty.
The cancellation penalty can be quite high, particularly when tickets were sold at a discounted price, but refusing to give any refund at all is not considered reasonable.
4.6. Can a travel agent be forced to refund the traveller in cash, even if the travel service provider refuses to refund the agent?
The fact of the matter is that many travel service providers are not currently offering cash refunds, because of the severity of the COVID-19 crisis or because they believe that the CPA doesn’t apply to them (whether they are right or wrong is immaterial right now).
Technically speaking, travel agents are considered retailers in terms of the CPA. You can argue that you are just an intermediary and that the contract takes place between your customer and the travel service provider directly, but the definition of a supplier in section 1 includes someone who promotes services, even if they are not a party to the transaction.
However, the fact that the travel service provider did not refund the agent will be taken into account by the CGSO when determining what is reasonable under the extraordinary circumstances we are in.
4.7. Can the consumer claim for any other types of loss?
When flights get cancelled, a lot of consumers are trying to claim for accommodation and other bookings they have made that they can no longer honour. Under these circumstances, can an airline be held responsible for those costs if the consumer can’t get a refund?
If there has been a travel ban or other circumstances beyond the travel service provider’s control, the consumer is not entitled to claim for anything other than a refund of the airfare (see section 47(5)).
If there has not been a travel ban, but flights gets cancelled and the airline does not offer a reasonable alternative, the airline may have to compensate the consumer for costs directly incidental to the booking (see section 47(3)(b)).
4.8. Does the CPA apply to foreigners and foreign travel service providers?
Sometimes it does. It will depend on where the contract was concluded. To determine this can be quite technical, but here are some pointers:
- If the travel service provider has an office here and the transaction took place over the counter or telephone, the CPA will apply.
- For online transactions, section 22 of the Electronic Transactions and Communications Act will apply. The transaction is concluded at the time and place at which the offer is accepted. You can dictate who is making the offer to whom in your terms & conditions. If the offer is accepted outside of South Africa, the CPA will not apply. Instead, the consumer protection laws of that country will apply.
- Always check what your terms & conditions say about this.
5. Be Clear and Reasonable
We recommend that you come up with a clear policy on how you handle these requests and what you will do if a particular customer is not happy with the result. Keep in mind that you may have to show the CGSO this policy, so make sure that it is reasonable and allows for deviations on a case by case basis.
The good news is that the CGSO also expects your customers to be reasonable and she understands the pressure we are all under. So think about ways of incentivising customers to take a postponement or a credit instead of cash.