OFT warns universities against "blanket" use of academic sanctions for non-tuition fee debts

Out-Law News | 20 Feb 2014 | 11:37 am | 3 min. read

Universities that prevent students from graduating or enrolling onto the next year of their course if they have outstanding non-tuition fee debts "regardless of circumstances" could be breaking consumer protection laws, the regulator has warned.

The Office of Fair Trading (OFT) said that around three quarters of the 115 UK universities it looked at as part of a study had terms and conditions that could result in academic sanctions for unpaid accommodation fees, university childcare services and other non-tuition fee debts. In some cases, universities had the ability to impose sanctions in relation to small amounts or where debts were disputed, according to a new report (54-page / 385KB PDF).

The regulator has now written to over 170 universities and higher education institutions (4-page / 92KB PDF), asking them to review their rules and practices and revise them where necessary.

"Preventing progression or graduation not only affects students' educational experience but could also significantly harm their future employment prospects and ability to pay off their debts," said Nisha Arora, senior director in the OFT's services, infrastructure and public markets group.

"Not all universities use these terms, and our report identifies some examples of alternative approaches. We expect all institutions to ensure that their rules and methods for debt collection are fair and comply with the law," she said.

The OFT began its investigation in July 2013 after the National Union of Students complained that, in some cases, students were being prevented from graduating due to non-payment of fines on overdue library books, parking or damage.

In its report, the regulator said that reliance by universities on contract terms that allow them to impose academic sanctions for "non-payment of ancillary services" was "open to challenge as potentially unfair" if this was done "in a blanket fashion and regardless of the circumstances". The Unfair Terms in Consumer Contracts Regulations and the Unfair Contract Terms Act prevent the use of contract terms that cause a significant imbalance in the parties' rights and obligations under the contract, to the detriment of the consumer.

"The use of such terms appears to be a longstanding practice amongst much of the sector, and several reasons have been put forward to justify this," the OFT said in its report. "These reasons are essentially that the sanction acts as a backstop, when ordinary requests for payment have not been successful, and is a cost effective means of ensuring legitimate debts are paid ... While we understand these points, we have identified that not all universities have terms and conditions that provide for the use of academic sanctions in cases of student debt."

"It is a matter for individual universities how they manage debts that their students owe in compliance with the law. But we consider that universities may be able to reduce the risk of legal challenge by reviewing their terms and conditions and practices and amending them, if necessary, to ensure terms and practices considered by the OFT to be potentially unfair are not being used. Ultimately the final decision on whether there has been a contravention of the consumer protection legislation referred to in this report rests with the courts," the report said.

Universities expert Nicola Buchanan of Pinsent Masons, the law firm behind Out-Law.com said although the outcome of the OFT's investigation was not surprising, the report did appear to leave open the possibility that some academic sanctions could continue to be used where it was proportionate to do so.

"The ability to use academic sanctions for non-payment of ancillary services puts the university in a significant position of power, both in absolute terms - as the student is entirely reliant on the university to award the degree - and in comparison to the situation where ancillary services are provided by someone else," she said.

"Having said that, the OFT appears to leave open the possibility that some academic sanctions could be used for non-payment of ancillary services provided it is proportionate to do so (perhaps where the debt is significant and other means of recovering payment have been exhausted); there is a transparent and fair process which gives the student the opportunity to present their case before the sanction is applied; and the process and sanctions are set out clearly in the university's rules and regulations," she said.

She added that universities should review their current rules and regulations carefully, and where necessary make the amendments needed to take into account the OFT's findings and views. "If they don't, and the OFT continues to receive complaints about this, it has intimated that enforcement action could be the next step," she said.

The OFT said that the results of its investigation would be "fed into" its ongoing call for information into undergraduate higher education in England, which it is carrying out in light of recent Government reforms to the sector's tuition fees and regulatory structure. It is due to report back on its findings next month.

"The OFT has yet to publish its findings, but previous calls for information have generally led to some type of further OFT action," said competition law expert Guy Lougher of Pinsent Masons.