BILL ANALYSIS                                                                                                                                                                                                    



          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  







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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. 









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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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