College cashing in on 'ghost students' unconscionable

After a long-running litigation battle that began in 2018, the Federal Court of Australia has handed down its decision in Australian Competition and Consumer Commission v Productivity Partners Pty Ltd (trading as Captain Cook College) (No 3) [2021] FCA 737, where it found Productivity Partners Pty Ltd, trading as Captain Cook College (College), had engaged in systematic unconscionable conduct in its enrolment of students who racked up significant debt and never finished, or even engaged with, their courses.


Background

The College was a registered training organisation and a vocational education and training (VET) provider that supplied diploma-level courses to students. The students were entitled to apply for and receive a loan from the Commonwealth to pay the course fees under a scheme known as VET-FEE HELP (Scheme), where an amount of money per student was paid by the Commonwealth Government directly to the institution if the student remained enrolled until the census date, and the students would then pay back 120% of the loan to the Commonwealth once their income was above a certain threshold.


In order to market its courses and recruit students, the College contracted with third party recruiters and course advisers. These recruiters received commission if a consumer was enrolled past the census date.


During the period from 7 September and 18 December 2015 (Relevant Period) the College enrolled over 7,000 students in online courses in subjects such as business, project management and human resource management, and claimed over $50 million from the Commonwealth under the Scheme. Also during the Relevant Period, the College made significant changes to its enrolment and withdrawal processes (Process Changes) so that ghost students were not contacted or automatically dropped out of their courses for 0% attendance.


During trial it was revealed that more than 90% of students had not completed any part of their online course, and around 86% never logged into the course at all.


The ACCC argued that the College had engaged in systematic unconscionable conduct, in contravention of section 21(4)(b) of the ACL, by:

  1. making the Process Changes when it knew, or ought to have known, that the changes would have the effect of significantly reducing protections for students. It argued the Process Changes were calculated purely to increase the College’s profits by increasing the number of students enrolled; and

  2. claiming and/or retaining vastly increased revenue under the Scheme which was generated by its implementation of the Process Changes.

Decision

The Court said that when assessing alleged breaches of section 21(4)(b), it is wrong to isolate each integer of the system and determine unconscionability on that basis. Instead, it is the system as a whole as constituted by, potentially, many inter-related integers that is to be assessed:


The Court found that the College had engaged in a system of unconscionable conduct in that (at [499]):


the [C]ollege well knew that its dramatic increase in revenue and turnaround in profits was substantially built on [revenue from the Scheme] in respect of students who may have been the victims of [misconduct], were unsuitable for enrolment, should not have been enrolled and who would gain no benefit whatsoever from their enrolment, yet who incurred very substantial debts to the Commonwealth as a result of their enrolment.”


Allowing students who failed to log into to their course and were unable to be contacted by the College to progress through census so that the College could claim the revenue under the Scheme from the Commonwealth (at [500]):


"was to act against conscience; it was a sharp practice that was manifestly unfair to such consumers; it was driven by avarice without regard to the interests of such consumers; it preyed on their vulnerability.”


With regard specifically to the claiming and retention of the revenue under the Scheme, the Court rejected the College’s argument that it had simply followed the rules of the Scheme, saying (at [507]):


“if the system of conduct or pattern of behaviour that is complained of is unconscionable, then to claim and retain the windfall benefits of that conduct is also unconscionable.


The Court noted there were fundamental flaws with the Scheme, rejecting the College’s argument that its policies were not unconscionable given other VET providers in Australia had the same or similar policies, saying (at [517]):


"the fact that something is a common practice in the particular sector of the market does not mean, necessarily, that it is not unconscionable. To put it differently, just because everyone is rorting a poorly designed and/or administered scheme does not mean that no one’s rorting is unconscionable.


The College was also found to have breached other sections of the ACL, by making false or misleading representations and failing to comply with the requirements for unsolicited consumer agreements in dealing with certain consumers. Its parent company, Site Group International, and the College’s former CEO and COO were also found to have been knowingly concerned in the College’s unconscionable conduct.


The Court will determine penalties and other orders at a later date.


By Louise Gehrig and Sam Williams