The best things in life are free – but are still subject to consumer protection

Organisations working in the public and not-for-profit sectors are still required to comply with consumer protection legislation when they carry out for-profit tasks, even if their goods or services are provided for public benefit or at a discounted rate.

The European Court of Justice (ECJ) has confirmed[1] the Advocate General’s recent opinion that a state-funded school, providing free education, is subject to the European Union’s rules on unfair contract terms where it supplied services for-profit. 

A student was offered an interest-free loan[2] (repayable over seven months) to pay her registration fees for the academic year plus the cost of student trips. The terms of the loan allowed the school to charge interest if the student defaulted on her monthly payments, at a rate of 10% from the date of default. The student missed a payment, and a summons was issued. The student claimed the term was unfair and challenged the enforceability of the interest payments.

One of the disputed issues was whether a free, educational establishment was caught by the consumer protections contained within Directive 93/13/EEC (the Directive).

The protections within the Directive apply where there is a contract between a “Seller or Supplier” and a “Consumer” for goods or services, which are offered for “purposes relating to trade, business or profession” and for remuneration. The school argued that as a state-funded school it was not acting in the course of a trade, business or profession. The school had also subsidised the total tuition fees payable by the student and so believed it was not caught by the Directive[3]. The ECJ confirmed that the definition of “Seller or Supplier” is very broad and applies to the contractual arrangement between the parties, not the legal status of the person supplying the goods or services or how much they charge for the supply.

The ECJ confirmed that providing the student with the interest-free loan and the ability to pay in instalments was “complementary and ancillary to its educational activity”. The term was subject to the Directive and held to be unfair (and therefore unenforceable), owing to the distorted bargaining power between the school and the student.

Key points for charities, schools, public authorities and other organisations providing goods and services for a public benefit

The Consumer Rights Act 2015 (the Act) replaced the previous Unfair Terms in Consumer Contracts Regulations 1999 and translated the Directive in English law. It empowers consumers to expect, amongst other things:

• goods and digital content to be of satisfactory quality, fit for their particular purpose, and as described;
• services to be delivered with reasonable care and skill, for a reasonable price and within a reasonable time; and
• contract terms and notices to be fair.

Remedies are available to consumers if these requirements are not met and generally, a breach of the consumer protections within the Act will entitle consumers to:

• reject goods or services;
• a repair or replacement; or
• a price reduction or refund.

It is important to understand that charities, schools[4] and other public-sector bodies are subject to the Act where they enter into a contract for activities provided in the course of their trade, business[5] or profession. Consumer protections still apply, regardless of whether the goods or services are supplied by a not-for-profit organisation, in the public interest, as a ‘freebie’[6] as part of a purchased package or at a discounted rate.

For more information

If you have any questions on the issues raised in this article or would like to review your consumer contracts, contact Emma Watt.

[1] Karel de Grote Hogeschool – Katholieke Hogeschool Antwerpen VZW v Kuijpers (Case C-147/16) EU:C:2018:320 (17 May 2018)

[2] Please note that in certain circumstances providing credit or allowing individuals to pay in instalments may require authorisation from the Financial Conduct Authority.

[3] Generally, public education is provided as part of the State fulfilling a legal duty, rather than a supply of services.

[4] Please note that the Competition and Markets Authority takes the view that education providers (including those operating on a non-profit basis) must treat their students as consumers for the purpose of the Act – Page 12

[5] “Business” includes the activities of any government department or local or public authority (section 2(y) Consumer Rights Act 2015).

[6] Certain rights also exist where digital content is provided free of charge.

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