The Competition and Markets Authority (CMA) said that while the majority of early years settings are treating customers fairly, it has received reports of unfair practices, mainly relating to payments and cancellations in the context of the coronavirus lockdown.

As part of its investigation, the CMA wants to remind the sector of its legal position and for consumers to understand their rights under law.

It said consumers should not have to pay for services that can’t be provided and as such, they should be offered a refund where services are paid for in advance but can’t go ahead. Contract terms which require parents or carers to pay providers which are not giving the service as agreed “are likely to be unfair and unenforceable”, it noted.

However, it would be “unlikely to object” to a term which allows the provider to request a small contribution to its costs while service are temporarily disrupted. But this contribution must be low – no more than direct unavoidable costs such as mortgage/rent, utilities or insurance.

They also can’t be used to cover costs which are reimbursed by the government, such as the furlough scheme or via business insurance. The charges must also stop if the customer wants to end the contract.

It said it is aware that voluntary arrangements have been made between the childcare setting and parents and as long as it was fairly agreed, then the CMA doesn’t object.

When it comes to notice periods, the CMA said these as well as cancellation fees may be appropriate in normal circumstances, but they must be fair, particularly in these unprecedented times.

Where parents can’t make use of childcare due to lockdown measures yet providers are putting unfair pressure on them to make payments by threatening that a child’s place will be lost or that they’ll go out of business, the CMA said this is likely to be unfair or illegal.

The CMA noted: “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.”

Consumers can pursue claims

Gordon Ashworth, director – consumer group at the CMA, added: “Providers of early years services should examine their agreements with parents and ensure they comply with consumer law. The CMA is not announcing any enforcement action at this stage but will continue to monitor the sector.

“Businesses should also be aware that in addition to any action which the CMA or local authority trading standards services may take, individual consumers will have the option of pursuing a claim against businesses for alleged breaches of consumer law.”

Neil Leitch, chief executive of the Early Years Alliance, said: “We welcome the CMA 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.”