Tutoring crackdown: Beijing steps in to broker refunds on behalf of parents

After Beijing banned for-profit tutoring, parents asked for their money back. Now the government is stepping in to ensure they can actually get it.

On Wednesday, China’s Ministry of Education issued guidelines (in Chinese) on how parents and tutoring companies can resolve disputes over fees and refunds less than a day after embattled U.S.-listed tutoring giant OneSmart Education (NYSE: ONE) folded due to spiraling debt.

The guidelines are in the form of a standardized contract, titled “Contract for primary-secondary after-school tutoring” (Word doc here, in Chinese), to be used henceforth when parents purchase non-core subject courses from tutoring companies (core subject courses are not legal anymore). The contract outlines the rights and obligations of both parents and tutoring companies, along with the terms in which parents can request refunds.

Many of these terms are generous to the parents, acting as a kind of consumer protection clause. Under the new contract, tutoring companies must refund parents and pay a percentage in damages if:

  • They alter the teaching conditions such as the teacher or the manner of teaching without written consent.
  • Their license expires, gets revoked, or they’re forced to close.
  • They fail to deliver on things they have promised in brochures and promotional material.
  • They outsource the training classes to a third party.

The announcement was billed as a continuation of the “double alleviation” policy 双减“政策 (PDF here, in Chinese) from late July, which ordered all after-school tutoring companies to register as nonprofits by the end of the year. That set off a cascade of industry changes as education companies laid off workers, revamped their business models, and offered new services such as classes for parents.

But many parents simply want their money back. On Monday, they lined up in the rain outside the Shanghai headquarters of OneSmart Education to demand refunds and unpaid salaries. The company filed for bankruptcy a day later, citing the harsh regulatory landscape. It then sent a letter to parents with instructions to register their refund claims.

Requests for tuition refunds and salaries are mounting at other tutoring companies, including New Oriental Education, Gaotu Techedu, TAL Education, and Zhangmen Education. Previously, each company would set its own terms for how to refund fees. The standardized contract offers parents a legal ballast to litigate these claims in court if need be.

The new contract does not apply to parents who have already purchased services, so the government has not yet legislated a cleanup for the biggest mess left behind by the tutoring bans. But the new contract and the government push behind it indicates Beijing’s willingness to get its hands dirty to protect consumers. Last month, the Ministry of Education ordered all tutoring companies to halt new enrollments and fee collections until they had registered as nonprofits.

As the Chinese government targets a range of industries for rectification, such as the precarious real estate sector, the question is whether, and to what extent, Beijing will step in to save consumers.

Author: Chang Che, SupChina

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