The gym industry is being advised by the Commerce Commission that many gyms may be breaking consumer credit law when customers pay for membership by instalments.
The gym industry is being advised by the Commerce Commission that many gyms may be breaking consumer credit law when customers pay for membership by instalments.
The Commission recently investigated the gym membership contracts of 13 randomly chosen gyms around the country after receiving complaints about the difficulty and/or expense some customers were experiencing when they tried to cancel memberships.
The Commission concluded that gym membership contracts that are paid by instalment and are subject to fees or interest are likely to be consumer credit contracts, and should comply with the Credit Contracts and Consumer Finance Act (CCCF Act). All except one of the contracts investigated were likely to breach the CCCF Act. The contracts failed to advise customers of their statutory right to cancel the contract, and failed to disclose the initial unpaid balance due under the contract (the full cost of the membership for the minimum period.)
"It is fundamental to consumers' rights that they are given full information when they sign up for a credit contract. Often people will enter a gym membership contract just wanting to get started on their new passion for fitness. However they need to be made aware of the true cost of the contract, so they can make an informed decision about whether to go ahead and sign," said Graham Gill, Competition Branch manager, Commerce Commission.
"We have good reason to expect that these practices in breach of the Credit Contracts and Consumer Finance Act are widespread within the fitness industry. We are giving the industry fair warning to shape up," said Mr Gill.
Failure to comply with the disclosure provisions of the CCCF Act can make the contract unenforceable, and an attempt to enforce the contract may also breach the Fair Trading Act as a misrepresentation of the right to enforce the contract.
"Thousands of people throughout the country may have entered into gym membership contracts that breach the CCCF Act. We have encouraged the gym industry to seek legal advice and put this matter right urgently. If they don't do so, the Commission may take enforcement action in the future," said Mr Gill.
Background
The Credit Contracts and Consumer Finance Act regulates consumer credit contracts. The Act sets out specific rules including rules about the information (disclosure) that must be provided to consumers, the fees that can be charged, and the way that interest (if any) can be calculated. The CCCF Act also gives consumers the right to cancel a contract within a statutory time period, plus a right of early repayment of a loan.
A creditor who has not complied with the disclosure requirements of the CCCF Act may be prevented from enforcing the credit contract, and may also be required to refund payments received under the contract. A breach of the CCCF Act is a criminal offence and penalties imposed by the Courts may include:
Statutory damages; and
A fine of up to $30,000, and
The creditor may be banned from providing consumer credit.
Under the Fair Trading Act 1986 it is an offence to make a false or misleading representation.
Only the courts can decide if the Fair Trading Act has been breached and set appropriate penalties. Penalties can be up to $200,000 for a business and up to $60,000 for an individual.
