BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 2810


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          Date of Hearing:  April 26, 2016


                   ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS


                                  Rudy Salas, Chair


          AB 2810  
          (Eggman) - As Amended April 18, 2016


          SUBJECT:  Health studio services:  cancellation.


          SUMMARY:  Requires contracts for health studio services to allow  
          a buyer to cancel the contract via first-class mail, via email  
          from an email address on file, or in person.


          EXISTING LAW:


          1)Establishes consumer protection requirements for contracts for  
            health studio services.  (Civil Code (CIV)  1812.80 -  
            1812.98) 
          2)Defines "contract for health studio services" as a contract  
            for one the following services:  (CIV  1812.81)


             a)   Instruction, training, or assistance in physical  
               culture, body building, exercising, reducing, figure  
               development, or physical skill.
             b)   The use of the facilities of a health studio, gymnasium,  
               or other facility used for the above purposes. 


             c)   Membership in a group, club, association, or  








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               organization formed for the above purposes.  


          3)Provides that a "contract for health studio services" does not  
            include contracts for any of the following services:  (CIV   
            1812.81)
             a)   Professional services provided by a person licensed  
               under Division 2 of the Business and Professions Code (BPC)  
               relating to Healing Arts (BPC  500 - 4999.129).
             b)   Instruction at schools operating pursuant to the  
               Education Code. 


             c)   Instruction, training, or assistance relating to diet or  
               control of eating habits not involving physical culture,  
               body building, exercising, figure development, or physical  
               skill.


          4)Requires a contract for health studio services to contain on  
            its face, and in close proximity to the space reserved for the  
            signature of the consumer, a conspicuous statement that  
            states, among other things, that the consumer may cancel the  
            agreement by mailing or delivering a cancellation notice to  
            the health studio operator's address.  (CIV  1812.85(b)(1))
          THIS BILL:


          5)Specifies that, at any time a cancellation is authorized under  
            the state laws relating to contracts for health studio  
            services (CIV  1812.80 - 1812.98), the consumer may cancel  
            the contract via first-class mail, via an email address on  
            file, or in person.


          6)Requires a contract for health studio services to state,  
            alongside the existing mailing provisions, that a consumer may  
            cancel the agreement by delivering in person a cancellation  
            notice to the health studio operator's address or by sending  








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            an email from an address on file with the health studio.


          7)Makes other technical and clarifying amendments, including  
            deleting an outdated reference to sending a telegram.  


          FISCAL EFFECT:  None.  This bill is keyed non-fiscal by the  
            Legislative Counsel. 


          COMMENTS:


          Purpose.  This bill is sponsored by the author.  According to  
          the author, the "process of sending a cancellation letter via  
          certified mail is time consuming and inconvenient and creates a  
          hardship for gym members, which causes them-in some cases-to  
          continue in memberships they have idled, and pay for access to  
          services they are not using.  The confusion caused by this  
          complicated requirement and the lack of options for recourse  
          results in considerable frustration, unnecessary expense, and  
          forces gym members to go through onerous steps in order to  
          simply cancel a membership.  [This bill] will free fitness club  
          members from having to navigate a complicated, time consuming  
          process by giving them the choice to cancel their membership  
          contracts in person or via first-class mail."


          Background.  California contract law provides protections for  
          consumers of certain services, such as health studio and gym  
          services and dance studio lessons.  Specifically, the purpose of  
          the protections as they relate to health studio and gyms "is to  
          safeguard the public against fraud, deceit, and financial  
          hardship, and to foster and encourage fair dealing, and  
          prosperity in the field of health studio services by prohibiting  
          or restricting false or misleading advertising, onerous contract  
          terms, harmful financial practices, and other unfair, dishonest,  
          deceptive, destructive, unscrupulous, fraudulent, and  








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          discriminatory practices by which the public has been injured in  
          connection with contracts for health studio services" (CIV   
          1812.80).  


          For instance, existing law specifies the maximum lengths of  
          health studio contracts, specifies the maximum payments allowed,  
          and limits a health studio's ability to force buyers to sign  
          waivers and indemnity clauses.  It also provides buyers with  
          treble damages (three times the amount of actual damages awarded  
          to a buyer) and attorney fees when health studios violate the  
          contract requirements. 


          Cancellation of Gym Memberships.  One of the current consumer  
          protection issues is related to a health club's ability to  
          automatically charge a consumer's credit card or bank account  
          through an electronic funds transfer (EFT).  While existing law  
          provides various timelines for canceling a health studio  
          contract, it is unclear on the methods a consumer may use to  
          cancel a contract.  


          Specifically, CIV  1812.85(b)(1) requires all contracts for  
          health studio services to contain the following statement: "You,  
          the buyer, may cancel this agreement at any time prior to  
          midnight of the fifth business day of the health studio after  
          the date of this agreement, excluding Sundays and holidays.  To  
          cancel this agreement, mail or deliver a signed and dated  
          notice, or send a telegram which states that you, the buyer, are  
          canceling this agreement, or words of similar effect."  


          Because the law specifically notes mail and telegram, many  
          health studios and gyms do not allow members to cancel over the  
          phone or via email.  This can be burdensome for consumers, as  
          some may try to cancel over the phone or through email, not  
          realizing the contract specifies they may only cancel through  
          mail.  This may result in miscommunication between consumers and  








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          health studios.  For instance, there may be situations where the  
          consumer believes the contract is canceled but the health studio  
          continues to debit the account on file. 


          An example is a case involving the health club 24 Hour Fitness.   
          24 Hour Fitness settled a class-action lawsuit that alleged the  
          club intentionally continued to charge its members monthly dues  
          after they provided notice canceling their memberships (Friedman  
          v. 24 Hour Fitness USA, Inc., no. CV 06-06282 (C.D. Cal July 12,  
          2010)).  While there was no decision on the merits in the case  
          (no legal finding), it suggests that at least some consumers  
          have experienced difficulties with the issue of cancelations.   
          Further, there have been similar class-actions suits in other  
          states, for example Pennsylvania (Vaughn v. L.A. Fitness, no.  
          10-cv-2326-MMB (E.D. Penn., 2013)) and New Jersey (Martina v.  
          L.A. Fitness, no. 2:12-CV-02063 (D. N.J. 2013)).  To address the  
          issue, this bill will remove the ability of health clubs to  
          limit the ways a consumer can cancel a contract.


          Other States.  At least two other states, Hawaii (Rev. Stat. 6  
          (c)) and New Hampshire (N. Rev. Stat. Ann. 358-3 IV) require  
          health clubs to allow members to cancel in person or by mail. 


          Prior Related Legislation.  AB 693 (Eggman), Chapter 582,  
          Statutes of 2015, was substantially similar to this bill and  
          would have required contracts for health studio services to  
          allow a buyer to cancel the contract via first-class mail, with  
          an email address on file, or in person.  NOTE: This bill was  
          substantially amended to deal with a different topic.


          AB 602 (Spitzer and Huff) of 2005, would have provided that,  
          when a health studio facility is transferred or sold to another  
          health studio, a consumer of the health studio facility shall be  
          given the option of receiving a refund of his or her remaining  
          payments on the existing contract or entering into a new  








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          contract on the same terms with the new owners of the facility.   
          NOTE: This bill failed passage in the Assembly Committee on  
          Business and Professions.


          REGISTERED SUPPORT:  


          None on file.


          REGISTERED OPPOSITION:  




          None on file.


          Analysis Prepared by:Vincent Chee / B. & P. / (916) 319-3301