Consumer watchdog issues advice to nurseries over lockdown fees

The Competition and Markets Authority (CMA) has written an open letter to the early years sector  following an investigation into parents’ complaints against nurseries over fees during nursery closures in the wake of the coronavirus pandemic.

It said that 'a significant number of complaints' made to the CMA were from those parents or carers - alleging 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.

The regulator set up a Covid-19 Taskforce in April to examine nurseries and early years providers as one of three sectors of concern - along with holiday companies and wedding venues - following a rise in the number of complaints relating to cancellations and refunds during the coronavirus pandemic.

It followed reports alleging some unfair practices by a minority of nurseries and early years providers, mainly relating to payments and cancellations in the context of Covid-19 lockdown restrictions.

Complaints had included that nurseries were asking people to pay very high sums in order to keep a place open for their child.

At the time sector organisations said that most nurseries were waiving parents’ fees during the crisis, despite the terms of their contracts, and that it was likely to be only a minority of settings that were not acting reasonably.

Following analysis of the complaints received from various sources, the regulator said it would not be taking enforcement action at this stage but would continue to monitor the sector.

The CMA is asking providers to look at their contracts and arrangements with parents and take any necessary steps to ensure they comply with the law.

It has published more detailed advice highlighting how consumer law applies to the agreements between nurseries and early years providers and consumers (parents) affected by the Covid-19 pandemic.

The advice sets out the main issues of concern the CMA has seen, and the steps it would expect childcare providers to take to avoid breaking the law.

The letter from Gordon Ashworth, director of the consumer group, says, ‘The CMA recognises that we are in unprecedented times and, like most areas of the economy, the nursery and early years sector has encountered financial pressures and uncertainty.

'We understand that many providers and consumers will have discussed how best to handle the problems they each face and devised arrangements which work well for everyone. The CMA is not seeking to disrupt arrangements made freely between providers and consumers in such circumstances. However, it is important that all parties are aware of how the law applies in the current situation and the rights of consumers when reaching an agreement.’

THE LETTER TO THE SECTOR - SUMMARY

The three main themes covered by the investigation were:

1. Providers requiring full or excessively large fees for services which are not being carried out due to the pandemic public health restrictions and government guidance.

WHAT THE CMA SAID

‘The CMA would be unlikely to object to a term which allows the business to request payment of a small contribution to its costs whilst the service is disrupted for a limited period.’

However, costs must be low and should not seek to cover costs reimbursed in other ways, e.g through the furlough scheme.

‘Our investigation also found that businesses and consumers agreed to revise their contracts with some parents voluntarily agreeing to continue to make some payments. The CMA is unlikely to object to voluntary arrangements provided they are fairly agreed, and the business does not pressurise the consumer in any way to accept the new arrangement. ‘

2. Providers relying on unfair cancellation terms, such as requiring unreasonable notice to be given, or high cancellation fees in cases where the business is unable to provide the service.

WHAT THE CMA SAID

‘In general, notice periods and cancellations fees may be appropriate in normal circumstances, where the business is still able to provide a service but the consumer decides they want to stop receiving it.

‘Cancellation terms must however be fair and brought to consumer’s attention. Notice periods should be no longer than reasonable for the business to find a replacement child if the business continues to provide a service. Additional fees should also not be charged if a child continues to attend during the notice period. Where a child does not attend or a service is not provided during a cancellation period reductions should be offered to reflect lower business costs (such as food for the child) or no service being provided.’

3. Providers putting unfair pressure on consumers to agree to make payments by threatening that the child’s place will be lost or the provider will go out of business.

WHAT THE CMA SAID

‘Consumers are likely to be invested in their child continuing to attend a specific nursery or childcare service for a variety of reasons. Our view is that where legislation or other lockdown measures mean parents cannot make use of these services for a period of time, it is likely to be an unfair and illegal practice to warn or threaten to remove a child’s place unless the parent continues to pay full or substantially full fees during periods of lockdown.

‘Also, despite the financial pressures caused by the crisis, providers should not demand that consumers should pay high fees by warning that if they do not pay the fees the business will cease trading and/or livelihoods will be lost. To do so may breach consumer law.’

Sector response

Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA), said, ‘We are pleased to have had the opportunity to work with the CMA to support them to understand the issues faced by the early years and childcare sector ahead of issuing advice and guidance to providers.

‘The CMA has taken time to listen and understand the immense pressure providers were and still are under and recognised this in the context of consumer law.

‘During lockdown, settings were forced to close to all but vulnerable children and those of key workers and had severe limits on their income.

‘We supported members with approaches to parents about voluntary contributions. We know that the vast majority of our members have not charged parents during lockdown or have asked for small contributions.

‘These have been very challenging times for parents and providers. We welcome the fact that the CMA has decided to issue advice to the sector on staying within the regulations and understanding their obligations so that parents and providers get the best results, rather than take enforcement action.’

Neil Leitch, chief executive of the Early Years Alliance, said, ‘We know that despite the huge challenges childcare providers have faced over recent months, the vast majority have been wholly fair, reasonable and balanced in their dealings with parents and we are glad that this has been recognised by the CMA.

‘We also welcome their acknowledgement of the significant financial pressure that childcare settings have faced which, as we know, are the result of years of inadequate funding. Given how vital the early years sector is to society as a whole, no provider should have ever been put in a position where they were forced to ask parents for the financial support they should have been getting from the Government.

‘With more local lockdowns - or even a second coronavirus wave - widely expected, there is a real possibly that childcare providers may be ordered to temporarily close once again, meaning another huge drop in parental income for already-struggling nurseries, pre-schools and childminders.

‘It is vital, therefore, that the Government commits to giving the sector the financial support it needs, when it needs it - otherwise, we risk seeing many more childcare providers being forced to shut their doors for good.’

Liz Bayram, chief executive at PACEY, said, 'We are pleased to have had the opportunity to work with the CMA to support it to issue this advice and guidance to the early years and childcare sector. The CMA has taken time to listen and understand the immense pressure providers were and still are under and recognised this in the context of consumer law.

'We issued advice during lockdown (when all settings were forced to close to all but vulnerable children and those of key workers) that made clear what was reasonable and fair to expect in terms of support from parents and what was not. We know the vast majority of our members followed this advice, did not charge parents during lockdown or have asked for small voluntary contributions.'

More information

CMA guidance - Nursery and early years sector: COVID-19 restrictions and consumer law advice

The CMA statement on how the law applies to consumer contracts, refunds and cancellations.