In times where costs only ever seem to be increasing, many businesses look for ways in which these costs can be offset and unfortunately this is usually at the expense of the customer.
We’ve all had those familiar emails from our gyms, phone providers or streaming platforms informing us that our monthly subscription costs will be increasing when the initial introductory price appeared relatively low. This is a common tactic used by many businesses to entice new customers – offering a deceptively appealing price, to begin with, only for it to last for a short period before the price is increased.
Some consumers felt that these tactics were misleading, especially when warnings of these sudden price increases had not been included in the advertisement for the goods or services.
This was a particular issue in the telecoms industry and the Advertising Standards Agency (ASA) is currently consulting on guidance regarding mid-contract price rises in consumer contracts and the possible requirement for this to be more prominently advertised. The ASA is the body which deals with complaints regarding advertisements and misleading promotional materials and has a close relationship with the Competition and Market Authority (CMA).
The ASA can make rulings on adverts and can order that the marketing materials be withdrawn or amended. Failure to comply with an ASA ruling could result in sanctions which can include the CMA taking enforcement actions under consumer law.
Although the proposed guidance is aimed at the telecoms sector, non-telecom business-to-consumer providers should pay attention to the impact of this guidance, especially if they provide subscription-style services, as the same principles could apply and providers need to ensure they are not misleading consumers with their pricing.
Why is this important for care providers?
Care providers should be mindful of this guidance given that their services are consumer-focused and many operate on a rolling-contract basis, where some providers charge their fees monthly and others are charged weekly. With the increases in inflation as well as the cost of living, many care providers have been considering the impact of increasing costs mid-contract outside of an annual fee review. The CMA guidance states that terms relating to fee increases need to be treated with great care so that care providers do not increase their fees arbitrarily. Care contracts should clearly state the circumstances under which the fees can increase and the method of calculation.
Before increasing fees mid-contract outside the annual review, care providers should consider the following:
- Does your contract allow you to increase your fees outside of the annual review? If it does not, you should avoid increasing them outside of the annual review as this could be deemed as an unfair term, given that this right is not expressly stated in the contract and residents would not be able to anticipate such changes.
- How is your annual fee increase calculated? Does it already take inflation into account?
- If you do increase fees mid-year to take inflation and rising costs of living into account, you should ensure this is adjusted for the following year’s annual review to avoid double recovery.
For some care providers, these limitations may seem unfair at first. However, this reasoning ultimately stems from the fact that the law takes the position that it is easier for businesses to shoulder the uncertainty of cost increases rather than a consumer to do so, at least where the consumer cannot easily switch between providers. Depending on the mechanism for fee increases, in some years, the care provider benefits from their chosen method as it allows for more generous increases compared to the relevant index. However, in other years, it may mean that a provider has misjudged the measures that will be most favourable to them and costs exceed the rising index. Over the years this should theoretically balance out.
It is also worth noting that providers who have contracts with local authorities and/or commissioners have additional duties under the Care Act 2014 which should be leveraged to ensure providers can obtain fair increases for publicly-funding individuals.
ASA recommendations
According to the ASA recommendations, not only do contracts have to be clear, but advertisements should also be transparent in relation to mid-contract fee increases. The ASA has set out principles which should be followed by advertisers to ensure that the advertisements are compliant with the relevant codes and practices, meaning that they are less likely to mislead consumers.
Some of these recommendations include:
- Information regarding a price rise should be made up-front and be featured prominently in the advertisement.
- Information about the possibility of price rises should be part of the price claimed or should be stated next to the advertised price.
- Any descriptions of future price rises should be clear and easy to understand (avoiding technical jargon).
The above examples are not too dissimilar to the requirements that care providers have in relation to the transparency of fee up-lifts in their care contracts. However, care providers should also consider discussing the possibility of a mid-contract fee increase to new providers on or before their first visit to the home as well as making this more prominent in their key information document.
Although the ASA guidance is aimed at the telecoms sector, care providers would be prudent to consider this guidance as we could see in the future similar principles being applied across various sectors that are consumer-focused.
What does this mean for care providers moving forward?
If providers find that the above considerations mean that they cannot reasonably enforce a mid-year contract fee increase, care providers could: consider recouping these costs elsewhere by increasing fees for new customers, and/or updating their fee review methods and changing terms for new customers. Providers should remember that just because they have handled fee increases in one way does not mean that this is the method they have to stick with in perpetuity.
Providers could also amend the terms of their current contracts but this is much harder to implement in practice and it is likely that service users would push back to these types of changes.
For more information
If you have any questions relating to this ebriefing please contact Rumandeep Dhariwal or Emma Watt.
