BILL ANALYSIS Ó
SENATE COMMITTEE ON
BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
Senator Jerry Hill, Chair
2015 - 2016 Regular
Bill No: AB 2810 Hearing Date: June 6,
2016
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|Author: |Eggman |
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|Version: |April 18, 2016 |
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|Urgency: |No |Fiscal: |No |
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|Consultant|Bill Gage |
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Subject: Health studio services: cancellation
SUMMARY: Specifies that a contract for health studio services may be
canceled by the buyer in person, via email from an email address
on file with the health studio, or via first-class mail, and
makes other conforming changes.
Existing law:
1) Regulates the contracts entered into between health
studios and members of the health studios. (Civil Code
(CC) § 1812.80 et seq.)
2) Defines "contract for health studio services" to include
membership in a club, group or organization formed for
purposes of providing instruction, training or
assistance in physical culture, body building or
exercise, or other physical skills, or for the use of
facilities of a health studio, gymnasium, or other
facility used for the above listed purposes. (CC §
1812.81)
3) Requires every contract for health studio services to be
in writing and requires a copy of the written contract
to be given to the customer at the time he/she signs the
contract. (CC § 1812.82)
4) Provides that a contract for health studio services may not
AB 2810 (Eggman) Page 2
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require payments or financing by the buyer to exceed the term
of the contact, nor may the term of the contract exceed three
years, however, this does not apply to a member's obligation
to pay valid, outstanding moneys due under the contract,
including moneys to be paid pursuant to a termination notice
period in the contract in which the termination notice period
does not exceed 30 days. (CC § 1812.84)
5) Provides that the consumer may cancel the contract and
receive a pro rata refund if the health studio fails within
specified timeframes to provide specific facilities
advertised or offered in writing by the time indicated. (CC
§ 1812.85 (a))
6) Provides that the consumer may cancel the contract and
receive a pro rate refund if the health studio, during the
term of the contract, eliminates or substantially reduces the
scope of the facilities that were described in the contract.
(CC § 1812.85 (c))
7) Provides that depending on the amount of payment for
membership and initiation fees, the person receiving the
services or use of the facility shall have a certain amount
of specified days to cancel the contract and that the right
of cancellation shall be set out in the membership contract.
(CC § 1812.85 (d))
8) Requires every contract for health studio services to provide
a conspicuous statement as specified that states that they
buyer may cancel the agreement at any time prior a specified
time frame and may do so by mail, or deliver a signed and
dated notice or send a telegram that they buyer is canceling
the agreement. The notice shall be sent to the name and
address of the health studio operator as specified. (CC §
1812.85 (b))
This bill:
1) Provides that any time a cancellation of the contract is
authorized for health studio services, as specified, that it
may be cancelled by the buyer in person, via email from an
email address on file with the health studio, or via
first-class mail.
AB 2810 (Eggman) Page 3
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2) Provides that the contract for health studio services shall
include in the conspicuous statement that the buyer may
cancel the contract by mail, email, or deliver a signed and
dated notice that states that the buyer is canceling the
agreement and that the notice shall be sent via first-class
mail, via email from an email address on file with the health
studio, or delivered to the name and address of the health
studio operator listed on the contract.
FISCAL
EFFECT: None. Legislative Counsel has keyed this bill as
"non-fiscal."
COMMENTS:
1. Purpose. This bill is sponsored by the Author . According to
the Author, canceling a gym membership is unnecessarily
complicated and burdensome, as is the law dictating the
process, which is out of step with the times, technology and
the way we live our lives. The law still requires
cancellation via telegram, though Western Union sent its last
telegram in 2006, or certified mail, when many gyms have
their own mobile phone apps to check in or schedule classes.
In fact, as stated by the Author, the certified mail
requirement is so time-consuming and inconvenient that many
people continue paying for memberships they are not using;
this causes considerable frustration and unnecessary expense.
The Author indicates that according to the Better Business
Bureau, there have been 132 contract-related complaints
reported against fitness centers since March 2012 in the
Northeast California Region. In addition, there were 229
complaints related to billing or collection problems, some of
which may have been the result of contracts that were
difficult to cancel. The Author argues that this bill will
give fitness club members the choice to cancel their club
membership in person, via mail, or via first-class mail,
making the law responsive to technology and our contemporary
lifestyles.
2. Background.
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Growth of Health Studios in the U.S. The growth of health
clubs, and those who purchase members to these clubs, has
grown significantly since that time. Today nearly 55.3
million people belong to more than 36,180 health clubs in the
United States with over $25.8 billion in revenues received
from the public. This is in sharp contrast to 25 years ago
when only 20 million people belonged to about 13,000 health
clubs. Considering the growth in the variety of fitness
options available, consumers more and more are showing that
they believe in the physical and mental benefits of exercise
and are showing that belief by increasing their investment
(both in terms of time and money) in their health and
fitness. As a recent report shows from the International
Health, Racquet and Sportsclub Association, an average of 16%
of health club members belong to more than one club,
indicating that many people are willing to pay for access and
services across fitness facilities.
Current Regulation of Health Studios. Since the enactment of
the health studios law in 1961, many changes have occurred in
the overall costs for joining health clubs, the facilities
and service provided, and the type of contracts that
consumers enter into with these clubs. SB 581 (Figueroa,
Chapter 439, Statutes of 2005) was one of the first major
changes to the health studios law. Prior to SB 581, there
was concern that consumer were being locked into health club
contracts without an opportunity to consider whether they
want to continue using the services and facilities of the
health club, or to cancel the contract if services or
facilities were not provided as advertised or as promised, or
at some later time, are substantially reduced or eliminated.
Consumers were sometime subject to high pressure sales
tactics, and in some instances, felt obligated to sign a
contract immediately without adequate time to actually use
the services or facilities or think about whether they wanted
to continue their membership. Also, fees had to be paid up
front for a health club that may never open or goes out of
business at a later date and consumers had no other recourse
but to seek legal action to collect fees that had already
been paid.
In 2005, after extensive negotiations between the Office of the
Attorney General and the health club industry, SB 581 was
passed by the Legislature and signed by the Governor. SB 581
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extended the time from three days to five days in which a
consumer can cancel the contract with a health club for any
reason . A consumer was also granted an extended period of
time to cancel the contract, from 20 days to 45 days, and
receive a prorated refund if the amount paid to the health
club exceeded certain dollar amounts; if the contract
required payment of $1,500 to $2,000, then the consumer had
20 days to cancel, or if the contract requires payment of
$2,001 to $2,500, then the consumer had 30 days, or if the
contract requires payment of $2,501 or more, then the
consumer had up to 45 days to cancel. A consumer could also
cancel the contract and receive a prorated refund if the
health club failed to provide the specific facilities
advertised or offered in writing by the time indicated, or to
provide them within 6 months from the time the contract is
executed. This bill required the contract to provide a
description of the services, facilities and hours of access
to which the consumer is entitled, and those not described
would be considered as optional services. If during the term
of the contract the health club eliminated or substantially
reduced the scope of the services or facilities, or failed to
provide similar services if they are transferred to a
different club, the consumer could cancel the contract and
receive a prorated refund. SB 581 required that all of the
provisions regarding cancellation of the contract be set out
in the membership contract and if the health club did not
comply with any of these provisions, then the person could
cancel the contract immediately.
The bill removed the current cap of $1,000 on contract
amounts which was established in 1981, and provided a more
reasonable cap on dollar amounts charged by health clubs over
the next five years. These amounts were more reflective of
actual contract amounts for health clubs to reflect changes
in the state's Consumer Price Index. The bill provided that
after January 1, 2006, no contract for health clubs may
exceed $3,000 and after January 1, 2010, no contract may
exceed $4,400. Although the cap was being raised, it still
prevented health clubs from entering into "lifetime" health
programs or extremely long-term arrangements with large sums
of money paid up-front which potentially could bilk consumers
out of thousands of dollars if the health club went out of
business. The additional reasons to cancel a contract, such
as elimination or reduction of services, or having the
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additional time of 20 to 45 days to consider whether the
health club is providing all that it promised, provided
greater protections to consumers overall when entering into
contractual obligations with health clubs.
Lastly, the measure required that any health club that has
not yet opened for business must keep all funds in a bank
trust account and prohibited the use of these funds until the
health club has been open for at least five days. The
consumer would still have up until five days after the
opening of the health club to cancel the contract for any
reason.
Another measure was passed in 2006 to just clarify a
provision enacted into law under SB 581 regarding
requirements that would not apply to health studio services
contracts when there was a payment of less than $1,500. It
provided that if a health studio services contract requires a
payment of less than $1,500, including initiation fees or
initial membership fees and exclusive of interest or finance
charges, the health studio is was not required to comply with
the 20, 30 and 45-day timeframes during which a consumer may
cancel his or her contract, and other conditions as
specified.
SUPPORT AND OPPOSITION:
Support: None on file as of May 31, 2016.
Opposition: None on file as of May 31, 2016.
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