Phoenix Institute fined record $438m over 'cynical and calculated' conduct that misled students

A former vocational college and its marketing arm in Melbourne have been fined a record $438 million for taking advantage of vulnerable students while also receiving hundreds of millions of dollars in government support, even though the number of students who actually completed courses could be counted on two hands.

The Federal Court had previously found that Phoenix Institute of Australia and its marketing arm Community Training Initiatives had acted unconscionably and misled students into thinking the vocational courses they were enrolling in were free and that they would receive 'free' laptops, when this was not the case.

Phoenix was also found to have failed to properly assess language, literacy, numeracy and computer skills of its many vulnerable and disadvantaged students to determine if they were suitable for the courses.

Only nine out of more than 11,000 students completed a course at the college, and none completed two courses.

Most were enrolled in two courses at the same time, leading to significant debts. On average, students incurred a debt of about $37,000 each, totalling more than $350 million in debts under the former VET FEE-HELP scheme.

Phoenix received more than $106 million in Commonwealth funding under the VET FEE-HELP scheme, and claimed an additional $250 million for students enrolled in its courses between January and November 2015.

Proceedings were brought by the consumer regulator and the Commonwealth Government in late 2015 after a joint investigation with NSW Fair Trading. The Federal Court issued its findings in August 2021, but announced the fine last week.

"This case involved cynical and calculated systemic unconscionable conduct towards disadvantaged individuals, on an industrial scale," says Australian Competition and Consumer Commission chair Gina Cass-Gottlieb.

"The recruitment of vulnerable students by Phoenix and CTI caused significant harm to the students, who were left with large government debts for courses they were unlikely to be able to complete.

"The size of penalty reflects the total financial benefit obtained as well as the further amount claimed by Phoenix from the Commonwealth, involving hundreds of millions of taxpayers’ dollars."

Cass-Gottlieb says the record penalty should send a strong deterrence message to all businesses that rorting government funded schemes by taking advantage of vulnerable consumers is unacceptable, and will attract very substantial penalties to remove any financial incentive for such conduct.

The penalties imposed comprise $400 million for Phoenix and $37 million for CTI for their roles in the systemic unconscionable conduct, and $1 million for Phoenix for contraventions involving four individual consumers. 

In setting penalties for the conduct impacting those individual consumers, the judge considered 'the exploitation of, and predation upon, the vulnerability and disadvantage' of each of them. 

The judge also noted that the 'deliberateness with which the contraventions throughout the relevant period were undertaken by the...controlling minds of the respondents, highlights the morally abhorrent nature of the contraventions'.

In addition to the penalties, Phoenix will be ordered to repay all government funding it had received in relation to the conduct. While Phoenix and CTI are in liquidation, these orders ensure that Phoenix cannot receive the $250 million in government funding it claimed but which was not paid.

The Commonwealth has cancelled the debts of eligible students enrolled by Phoenix using the VET FEE-HELP Student Redress measures.

“Consumers who incurred debts as a result of inappropriate conduct by other vocational colleges should contact the VET Student Loans Ombudsman (VSLO) as soon as possible, so that the VSLO can investigate and seek to resolve their complaint,” says Cass-Gottlieb.

The court also made orders in relation to costs and redress.