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:  6/30/16 in Senate
          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:  contracts:  cancellation


          SOURCE:    Author
          
          DIGEST:  This bill provides for the contract for health studio  
          services to be sent by email to the consumer and that the  
          conditions of the contract may be sent in electronic format and  
          that the description of services and hours of operation may be  
          available on health studio's Internet Web site.  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.

          Senate Floor Amendments of 6/30/16 provide some further  
          clarifying changes to providing a contract for health studio  
          services in an electronic format, providing a notice of  
          cancellation by email, and to include a description of health  
          studio services on the health studio operator's Internet Web  








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          site.


          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.)

          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.   







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             (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 a copy of the written contract shall be  
            physically given to or delivered by email to the customer at  
            the time her or she signs the contract.

          2)Specifies that a contract for health studio services shall  
            include a statement printed in a size at least 14-point or may  
            be presented in an equally legible electronic format that  
            discloses the initial or minimum length of the term of the  
            contract. 

          3)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. 


          4)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  







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            operator listed on the contract. 
          
          5)Requires the contract for health studio services to contain  
            the mailing address of the health studio operator to which a  
            notice of cancelation is to be sent and the email address of  
            the health studio operator to which a notice of cancellation  
            email is to be sent.

          6)Allows the contract for health studio services to also provide  
            a description of the services, facilities, and hours of access  
            to which the consumer is entitled on the health studio  
            operator's Internet Web site and that for those services,  
            facilities and hours of access that are not described on the  
            health studio operator's Internet Web site, they shall be  
            considered as optional services and subject to separate  
            contracts as specified.


          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. 

          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  







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          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.  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  







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          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, 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.  

          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  







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          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:   (Verified8/2/16)


          International Health, Racquet and Sportsclub Association


          OPPOSITION:   (Verified8/2/16)


          None received


          ARGUMENTS IN SUPPORT:     The International Health, Racquet and  
          Sportsclub Association is in support of this measure and  
          indicates that consumers of health studio services have three  
          methods of placing notice of cancellation: by email - from an  
          email address on file with the health studio to an email account  
          designated by the seller, in-person, or by the postal service.   
          Currently, the health studio statute states only one method -  







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          U.S. mail.  This measure additionally specifies that health  
          studios may provide membership contracts as an emailed copy or  
          hard copy.  Existing law does not contemplate substituting a  
          written pen-and-paper document with an electronic document.   
          IHRSA supports these changes to support electronic  
          communication, which is necessary in today's digital age.


           


          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
          8/8/16 9:33:50


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