BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2810|
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THIRD READING
Bill No: AB 2810
Author: Eggman (D)
Amended: 4/18/16 in Assembly
Vote: 21
SENATE BUS., PROF. & ECON. DEV. COMMITTEE: 8-0, 6/6/16
AYES: Hill, Bates, Block, Gaines, Galgiani, Hernandez,
Mendoza, Wieckowski
NO VOTE RECORDED: Jackson
ASSEMBLY FLOOR: 76-0, 5/2/16 (Consent) - See last page for
vote
SUBJECT: Health studio services: cancellation
SOURCE: Author
DIGEST: This bill 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.
ANALYSIS:
Existing law:
1) Regulates the contracts entered into between health
studios and members of the health studios. (Civil Code
(CC) § 1812.80 et seq.)
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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
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
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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.
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.
Background
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.
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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 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. SB 581 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
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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 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, SB 581 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
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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.
Ability to Cancel Health Studio Membership Outdated. 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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified 6/7/16)
None received
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OPPOSITION: (Verified 6/7/16)
None received
ASSEMBLY FLOOR: 76-0, 5/2/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,
Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier,
Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,
Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Holden,
Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,
Patterson, Quirk, Rodriguez, Salas, Santiago, Steinorth, Mark
Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Wood,
Rendon
NO VOTE RECORDED: Beth Gaines, Roger Hernández, Ridley-Thomas,
Williams
Prepared by:Bill Gage / B., P. & E.D. / (916) 651-4104
6/8/16 16:12:02
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