New CMA to look again at universities’ regulatory compliance

Out-Law News | 18 Mar 2014 | 2:16 pm | 3 min. read

Competition between English universities is mostly working well for students, but the UK’s new competition regulator should carry out further work on whether certain policies and practices are fully compliant with consumer protection legislation, according to a new report.

Reporting on the results of its call for information into competition between higher education institutions (HEIs) (88-page / 785KB PDF), the Office of Fair Trading (OFT) also suggested that the sector needed more efficient regulation with more of a focus on consumer choice. It recommended that the Competition and Markets Authority (CMA), which will replace it on 1 April, should provide assistance to the sector on the design of a new regulatory regime.

Competition law expert Guy Lougher of Pinsent Masons, the law firm behind Out-Law.com, said that there was good news for universities in the OFT’s report, as it had found no evidence of potential anti-competitive behaviour that would justify further review under the competition rules.

“The OFT has explicitly addressed head-on a couple of issues,” he said. “It has decided to take no action in relation to the rule that prospective undergraduates must choose between applying to either Oxford or Cambridge, on the basis that any impact on competition from the rule is likely to be limited and there may be efficiency benefits. Similarly, the OFT is not proposing to take any competition enforcement action in relation to the UCAS rule limiting prospective undergraduates to a maximum of five courses.”

“In fact, the OFT appears to have a potential concern that beneficial cooperation between HEIs might be discouraged by excessive caution amongst HEIs about infringing competition law. The OFT is not envisaging specific guidance be produced on the application of competition law to the HEI sector. It is, however, suggesting that there is scope for the CMA to emphasise further the need for HEIs to consider the impact of consumer benefits when properly evaluating whether behaviour might infringe competition law,” he said.

The OFT began an information-gathering exercise in October, with the intention of considering the impact of recent government reforms to the sector’s tuition fees and regulatory structure on students. Universities in England can now charge undergraduate UK and EU students up to £9,000 a year to take courses, but this is subject to a number of regulatory constraints and levers.

According to the OFT's report, the new system is working well for students overall. It said that although fees at most institutions tended to be "concentrated around the level of the fee cap", there were a number of reasons which would not require collusion between institutions why this could be the case, including the reduction in public funding which occurred at the same time. However, the consumer protection regulator did express some concerns that hidden charges for students and increases in international students' fees during their courses were among practices that could breach consumer protection laws.

The report also set out a number of further concerns, including reports that students were not being given enough information to enable them to choose the most appropriate course and institution before beginning their studies. It highlighted "information gaps" on teaching staff's experience or the long-term employment prospects from taking a particular course; and warned that by not providing students with all the relevant information about their course, universities could be putting students at a disadvantage or, in some cases, breaching consumer protection legislation.

Moving on to look at regulatory issues, the OFT said that the current regime had a tendency to be complex and did not necessarily treat all HEIs in a "fair and equitable" manner. Respondents to the call for information particularly highlighted the lack of a level playing field between traditional and private sector providers, the role of self-regulation in the sector and the lack of an adequate 'exit regime' to protect students if their university or course was to close. It suggested that the CMA should work with the sector to inform the design of an improved regime as part of its follow-up work.

"The OFT;s comments about the system of regulation for the HEI sector being overly complex and in need of review, in order to ensure effective competition and choice, are interesting," said competition law expert Guy Lougher. "Potentially, there is now a real opportunity to try and develop a more streamlined and effective regulatory framework for the HEI sector, but that review may lead to a shift towards the introduction of stronger and more arm's length corporate governance arrangements."

"HEIs should now reflect on how they interact with students, to ensure that students have access to sufficient information to be able to make informed choices and to ensure that relevant consumer protection laws are observed. In terms of next steps, the CME will exercise a compliance review to identify the prevalence of practices that could lead to student harm and to establish whether they are likely to breach consumer protection legislation or do not represent best practice. In the meantime, the OFT has stated clearly that HEIs are responsible for ensuring that they comply with consumer protection legislation," he said.