On Thursday, the Competition and Markets Authority (CMA) announced that it would initiate legal proceedings against Care UK unless the company compensated 1,600 residents who the regulator has said had been charged "a compulsory upfront 'administration' fee of as much as £3,000" by the company.
The CMA has alleged that Care UK broke consumer protection law "by requiring a substantial non-refundable administration fee from residents for which they received no services or products in return". It also accused the company of misleading residents with its description of the charge and what it was for, and said residents had been "told about the fee very late in the admission process".
Following intervention by the CMA, Care UK recently stopped charging the fee, but the regulator said it had notified the company that it would "take action through the courts unless it also refunds people who have been affected". According to the CMA, Care UK faces a potential £3 million compensation bill.
The CMA's action in the Care UK case comes as part of an ongoing investigation into contract terms relied on by a number of care homes and their compliance with consumer protection law.
Competition and consumer law expert Tim Riisager of Pinsent Masons, the law firm behind Out-Law.com, said: "The CMA’s decision to issue a letter before action to Care UK is a further demonstration of its determination to enforce consumer law in the care homes sector. Care UK is the third operator to be caught up in the CMA’s consumer law case in the sector, following a settlement agreement agreed with Sunrise Senior Living and undertakings secured from Maria Mallaband."
"As part of its investigation into the sector, the CMA identified concerns relating to the payment of a non-refundable administration fee. A central takeaway from the CMA’s action is that it is insufficient for operators to simply end problematic practices. Instead, the CMA will also require affected residents to be compensated, enforcing through the courts if necessary. It remains to be seen which, if any, other operators are also under investigation. However, operators should be under no illusion about the CMA’s determination to take court action, where necessary," Riisager said.
The CMA published advice for care home operators about their obligations under consumer law last month.
The advice followed a CMA investigation into the potential non-compliance of care homes and a market study into the sector in 2016 and 2017. The investigation found that some care home residents were at risk of unfair treatment, and recommended urgent reform.