College dropout: record penalty for defunct education provider

The Federal Court has ordered the Australian Institute of Professional Education (AIPE) pay $153 million in pecuniary damages, the largest penalty ever imposed under Australian Consumer Law, after finding it engaged in a system of unconscionable conduct. The decision is an important reminder of the ACCC’s push for higher penalties for breaches of the consumer law particularly where the conduct is targeted towards vulnerable members of the community.

The ACCC claimed that between May 2013 and December 2015 AIPE engaged in a “system of unconscionable conduct” that involved the education provider enrolling thousands of vulnerable students in online diploma courses under the former VET FEE-HELP loan program. Under the VET FEE-HELP the Commonwealth would pay the student’s full tuition fee to the education provider upfront which is required to be repaid as a loan by the student.

The Court found that AIPE misled consumers by telling them the courses were "free" (without explaining the loan system) and by signing up, they would be eligible for free laptops and other devices. This was exacerbated by the fact that they used "recruiters" (often remunerated based on the number of people they signed up) who targeted vulnerable members of the community (including remote Indigenous communities), many of whom would not have been suitable for the courses.

AIPE received over $210 million from the Commonwealth for approximately 16,000 enrolments during the relevant period under the VET FEE-HELP scheme.

Allegations and findings of a system of unconscionable conduct is not new. In May this year, the Federal Court also found that Telstra had engaged in a system of unconscionable conduct when it sold (including via remuneration based agents), mobile contracts to vulnerable consumers, including members of Indigenous communities. Telstra was fined $50 million, which was, at the time, the second highest penalty imposed for a breach of the Australian consumer law.

ACCC Chair Rod Sims stated that “the magnitude of these penalties should serve as a significant warning to all Australian businesses that there can be very serious consequences for those who choose to engage in misleading and unconscionable conduct.”

AIPE was insolvent at the time of the hearing and the liquidators did not contest the ACCC's submissions that an appropriate penalty was a penalty within the range of $140 million - $170 million. The Court ultimately imposed a penalty having regard to the benefits that AIPE obtained arising from the conduct and the egregious nature of the conduct, on the basis that AIPE had no intention to provide the educational services.

The penalty (which is unlikely to be paid following AIPE being placed in liquidation) is a clear signal of the ACCC’s intention to pursue companies for engaging in conduct that seeks to take advantage of vulnerable consumers and segments of the community. It also serves to remind companies that they may be exposed to allegations of breaching the law by the conduct of selling agents, and the heightened risks of using incentivised strategies to reward those agents.

Businesses using "selling agents" should review their policies and procedures to ensure that agents do not engage in conduct that may breach the Australian Consumer Law, particularly where the level of remuneration or reward is contingent on the number of consumers that the agent can sign up.