What have nurseries got to do with student requests for fee refunds?

Jim Dickinson looks at new advice for the nurseries and early years sectors and asks if there are parallels for students and universities.

The Competition and Markets Authority has published a guidance note and an open letter for the nursery and early years sector on Covid-19 restrictions and consumer law.

Back near the start of the crisis, CMA published a note on services contracts, and said it would focus on three areas where it was getting a lot of correspondence – weddings and private events, holiday accommodation and nurseries and childcare providers. Obviously nurseries are not universities, and the focus areas means CMA has so far swerved publishing anything specific on universities, tuition fees and the pandemic – leaving us with this from the Office for Students (OfS) and this from the Higher Education Funding Council for Wales (HEFCW).

But this is advice aimed at nurseries and early years settings in relation to their agreements with parents (consumers) who pay for their places during Covid-19 pandemic restrictions. So there are… parallels.

As a thought experiment I thought we ought to ask ourselves what the implications would be if the advice to parents with kids in nurseries transferred across into the students and tuition fees context.

There are three things CMA picks out of its postbag. First there’s providers charging high fees for services which they were unable to carry out. Then there’s providers relying on unfair cancellation terms in their contracts. And finally there’s providers putting unfair pressure on parents to agree to make payments not provided for in their contracts. Do any of these apply in our context?

Issue 1: charging high or full fees for services not provided during lockdown

In this first area CMA notes that due to public health restrictions during the lockdown period, the government’s guidance was that nurseries should close to all except vulnerable children and those of critical workers. As a result, many settings were stopped from delivering the services they normally provide for parents.

Apparently a significant number of complaints made to the CMA have been from parents or carers who say that, despite the closures, nursery and early years settings continued to demand full ongoing payments, or payment of a very high percentage of normal fees (more than 50%+) during the lockdown period.

Clearly things are a bit different over in universities – because they tended to argue that teaching, assessment and other services continued but were moved online – whereas nurseries just stopped.

However there are many aspects of the provision that students “paid for” in their consumer contract that did stop as buildings became inaccessible, facilities stopped running and some services became difficult or impossible to access.

Here CMA says that consumers should not normally have to pay providers for services that cannot be provided for a period for any reason. It also says that a term requiring a consumer to continue to pay when a trader is unable to or is otherwise not providing any service is likely to be unfair and unenforceable.

It concludes that consumers should be offered a refund for services paid in advance which are then not provided by the business because of those restrictions, and no further demands for payment should be made until it is clear that the service can resume. It also says that consumers should not have to pay for temporary breaks in the service, where the provider is not in a position to actually provide care.

The question then concerns the university services “bundle”, and the extent to which students have paid in part for a set of services that can’t be provided. It’s worth remembering OIA’s reasoning in strike complaints here.

For example in this partly justified case a partial tuition fee refund was recommended, based on the notional cost of the teaching hours missed reduced by 50% – taking into account that “higher education providers have to provide and maintain buildings, IT and library facilities, wellbeing and other student support and administration”.

Crudely, if OIA was saying that teaching and assessment only represents 50% of a students’ tuition fees, then in a case that covers stopped services that aren’t teaching and assessment, maybe a student should expect a 50% rebate on each week’s worth of fees for which they couldn’t get onto campus.

Surely no university is claiming that all of the services that stopped in Match moved online and were “virtually” equivalent?

1a: Relying on an existing term in a contract

Some of this comes down to contracts – CMA notes that some contracts cover unforeseen events beyond the business’s control (“force majeure” clauses) but says that terms which seek to allow the business not to perform obligations yet require the consumer to continue to perform theirs substantially or in full “are likely to be unfair”.

That said, the CMA would be unlikely to object to a term which allows a business to request payment of a small contribution to its costs while the provision of the service is disrupted where:

  • the level of the contribution is low,
  • is no more than the unavoidable direct costs incurred during the break
  • reflects savings the business can be expected to make (such as by furloughing staff)
  • takes into account compensation the business receives from other sources such as insurance and government payments
  • there is a maximum period of liability agreed with the consumer
  • the customer has the option to exit the contract completely and so avoid payment (as well as a refund of any prepayments)
  • And all of the above is set out very clearly in the contract

The first person to send me their university-student contract that includes all of the above will get my personal Wonkhe mug sent to them in the first class post. I doubt I’ll be popping to the post office.

1b: Inserting a new term into an existing contract

The CMA says that some nurseries might both agree to revise their obligations under the contract, and some parents may also agree to suspend the contract or to voluntarily continue to make some payments during temporary breaks in service.

And the customer must not be pressurised to agree to any new terms, for example by the use of emotive language, or by threats or warnings to take away the child’s place when the nursery re-opens. Such behaviour is likely to be considered to be aggressive and unfair.

This is interesting because right now the majority of universities appear to be preparing to vary the terms of their contracts with students and the nature of the services on offer by inviting them to tick a box at enrolment.

Arguably most won’t realise their contract terms are being varied if this method is used – and for those that do realise, given the alternative is “you can‘t commence the academic year” that sounds a lot like unfair pressure to me.

And it also calls into serious question the practice of universities refusing deferrals – even for prospective students who may have already accepted an offer but who now find that its terms have changed significantly.

Issue 2: Using cancellation policies as a barrier to prevent parents from exercising choice

Here CMA is concerned that nurseries are using excessive cancellation fees or lengthy notice periods to make parents continue to pay even where no service is provided.

There aren’t really any parallels here, although CMA is stressing that consumers can’t be held to commitments to pay fees if a provider is in breach of contract for not providing what it promised.

Issue 3: Applying unfair pressure on parents to continue to pay

This is interesting. CMA has had complaints from some parents who were told they must continue to make full or substantial payments on the condition that, if they failed to pay, their child’s place would be lost after lockdown ended – even if the early years setting re-opened.

This also sounds a lot like some of the debates and conversations about deferral that have been swirling around for both new and continuing students.

There’s some reasoning here that is worth reviewing in detail:

Parents are likely to be invested in their child continuing to attend the nursery or early years service they have chosen. The choice is likely to be based on its availability, location, cost and reputation – with work and home lives becoming integrated to the nursery/daycare schedule.

For the child too, the early years setting may become a familiar location where they enjoy positive relationships with other children and their nursery teachers or carers. Settled relationships and arrangements are likely to be of great value to the parents (who are also then unlikely to shop around for alternatives or change service providers).

Under such circumstances the business holds a significant influence over the parents, especially where places are limited and alternatives scarce.

As a result of all that, CMA says that the practice of warning or threatening to remove a child’s place under such circumstances is likely to be an aggressive commercial practice under consumer law, “given the influence the provider has over parents or carers”.

That’s because it says that making such statements is likely to “significantly impair” the parent’s decision whether to continue to pay the early years setting – potentially causing them to pay (or to pay a greater amount) when they would not otherwise have done so.

It also says that such practices could also be “contrary to the requirements of professional diligence”, which means the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers which is commensurate with either:

  • honest market practice in the trader’s field of activity
  • the general principle of good faith in the trader’s field of activity

That is interesting in and of itself – but is very interesting once you look at the concept and apply it to (for example) some of the things Eve Alcock raised in her blog on influence and the line between “sales” and IAG on the site here.

Issue 3a: Unfairly suggesting that the business or livelihood will be lost if parents do not continue to pay

Finally, CMA says that some nurseries have expressed fears to parents that their service will not continue unless full (or substantially full) payments are continued to be met.

It’s very clear that a large number of universities have been saying – both formally and informally – sometimes in relation to finances generally and sometimes in replies to complaints – that they need the money from tuition fees to survive.

Here CMA discusses something that’s a new one on me – a specific prohibition in consumer law where it says that a trader must not require a consumer to buy a service on the basis that – should they not do so – the trader’s business or livelihood is at risk.

Businesses are also required to make clear to consumers if there is a risk that “even with their continued payments, the business may ultimately not be in a position to re-open”. The CMA also views that such requests should not be made unless the business is facing a clear risk of insolvency, “based on the advice of an accountant”.

All of that brings into very sharp focus (at least in England) both what universities have been saying about the financial position, and the accuracy (or otherwise) of statements of risk to continuation of study that are public in providers’ “current” student protection plans.

All of the above is arguably quite tenuous – and what would really help here is some actual advice from CMA on our actual sector, rather than vague reads-across and partial interpretations from regulators. It may, also, not help – depending on your perspective on such things.

What’s not clear is whether the sector could end up in some kind of mass/joint “terms” scandal/enforcement of the sort that engulfed the banks and credit card firms over payment protection insurance. We shall see.

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