Consumer credit

Some schools are trying to actively help their parents financially. David Emanuel writes about flexible fee payment options for challenging times

In the current economic climate, both schools and parents are seeking more flexible methods for the payment of school fees during the school year to help with cashflow. However, care should be taken before agreeing deferred payment terms with parents. Many schools that offer assistance unwittingly contravene the Consumer Credit Act 1974, as amended by the Consumer Credit Act 2006 (the Act).

The definition of a consumer credit agreement under the Act is very wide, and covers any agreement by which a school offers parents the right to pay fees in instalments at the time the invoice is issued, or for future fee invoices.
Consumer credit agreements are either exempt or regulated. The relevant exemption available to schools is an agreement by which the fees can be repaid in no more than four instalments over a twelve month period. All other agreements are likely to be regulated agreements.

Licences
To offer regulated Consumer Credit Agreements, a school must hold a Consumer Credit Licence, obtainable from the Office of Fair Trading (OFT). It is a criminal offence to operate regulated Consumer Credit Agreements without a valid licence. Breach of the law is punishable by a fine, imprisonment or both. Furthermore, any such agreements will be unenforceable against the parents unless validated by the Court. It is likely that a Court would not be prepared to validate an agreement where the provider of credit was unlicensed and/or the agreement itself was not substantially in the correct form or obtained without following the proper procedures for signing the credit agreement up.

Obtaining a licence
Some schools have already obtained CCA licences; the Times recently reported that Wellington College had arranged a licence to assist with the provision of more flexible payment terms for its parents. We are aware of other schools that have followed suit, particularly in the context of economic difficulties which are likely to continue throughout the next academic year. These schools are therefore looking to have arrangements in place for the beginning of the Autumn term this year.

Applications for a Consumer Credit Licence are made via an online application form, found on the OFT website. Once obtained most licences will last indefinitely, although the OFT reserves the right to revoke, suspend or vary the licence at any time. The school will appear on a Consumer Credit Register, together with limited details of the category of licence applied for and obtained. The licence fees for a school's application will be the region of £970.

Credit agreements
Once a school holds a Consumer Credit Licence, it may offer regulated Consumer Credit Agreements. In accordance with the act, these agreements must comply with very detailed regulations dealing with pre-contract information, the provision of agreements in prescribed form (including cooling-off periods in certain circumstances), ongoing post-contract obligations to provide information, and procedures for dealing with defaults. In addition, any security arrangements, including guarantees, may only be set up in accordance with the provisions of the act.

Implications and options for schools
Failure to comply with the provisions of the act may delay any action the school might take against defaulting parents, or those in arrears, and in the worst case could render the agreement unenforceable.

Schools can avoid these potential consequences by:
• structuring any instalment agreements in such a way as to make them exempt from the act;
• obtaining their own Consumer Credit Licence and offer fee-payment plans as regulated agreements in compliance with act (including payment of interest on instalments); and
• entering into an agreement with a third party bank or other lender which offers fee payment plans to parents and under which the school gets paid in full at the beginning of each term.

All parent payment plans currently operated by schools should be reviewed to check that they are compliant with the provisions of the act.

If you are planning to offer exempt or regulated agreements for the payment of fees on deferred terms, you will also need to consider whether it will be necessary to amend your standard parent contract, so that any deferred payment arrangements offered tie in with your standard terms for payment of fees, including defaults and notice periods.

David Emanuel is a partner and head of banking and finance at Veale Wasbrough Lawyers. David can be contacted on demanuel@vwl.co.uk or 0117 3145243.

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