BILL ANALYSIS
SB 581
Page 1
Date of Hearing: June 28, 2005
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Gloria Negrete McLeod, Chair
SB 581 (Figueroa) - As Introduced: February 18, 2005
SENATE VOTE : 21-13
SUBJECT : Health studio contracts: maximum fees: cancellation
rights.
SUMMARY : Makes various changes to health studio (i.e., health
club) contract law, including the timeframe, depending on the
total amount of the contract, in which consumers may cancel a
contract and get a pro-rated refund, the amount a health studio
may charge as part of the contract, and a requirement that
facilities that have not yet opened must hold moneys received in
trust. Specifically, this bill :
1)Provides that a consumer shall have the right to cancel a
contract with a health studio and receive a prorated refund if
the health studio does not provide the facilities advertised
or offered in writing either by the time indicated (which may
not exceed six months), or within six months.
2)Provides that a consumer may cancel a contract with a health
studio for any reason within five days of its initiation
provided written notice is given to the health studio.
3)Requires a health studio contract to describe the services,
facilities, and hours of access to which a consumer is
entitled. Any services, facilities, or hours of access not
described in the contract shall be considered optional
services.
4)Provides that if, at any time during the term of the contract,
the health studio eliminates or substantially reduces the
scope of the facilities, the consumer may cancel the contract
and receive a prorated refund unless the facilities are
temporarily out of operation for reasonable repairs,
modifications, substitutions, or improvements.
5)Specifies that if a contact for health studio services
requires payment of $1,500 to $2,000 for use of the facility
by a person, including initiation fees or membership fees, the
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consumer shall have the right to cancel the contract within 30
days after the contract is executed, and receive a prorated
payment based on use of the facilities for the 30-day period.
6)Specifies that if a contact for health studio services
requires payment of $2,001 or more for use of the facility by
a person, including initiation fees or membership fees, the
consumer shall have the right to cancel the contract within 60
days after the contract is executed, and receive a prorata
payment based on use of the facilities for the 60-day period.
7)Provides that, as of January 1, 2006, no contract for health
studio services shall require payment by the person receiving
the services or the use of the facilities of a total amount in
excess of $3,000, including initiation or membership fees and
excluding interest or finance charges.
8)Provides that after January 1, 2009, no contract for health
studio services shall require payment by the person receiving
the services or the use of the facilities of a total amount in
excess of $4,400, including initiation or membership fees and
excluding interest or finance charges.
9)Requires the right of cancellation, as specified, to be set
forth in the membership contract.
10) Requires that all moneys received by the seller of
health studio services from a consumer for a facility that has
not yet opened for business shall be held in trust and
deposited in a bank trust account, and prohibits the seller
from using such funds until the facility has been open for
five days and all refunds to consumers who have canceled their
contracts have been fully paid.
11) Provides that any consumer who pays money under
contract for health studio services at a health studio that
has not yet opened has until midnight of the fifth business
day after the date the health studio opens to cancel the
contract and receive a full refund. The money shall be
returned to the consumer within 10 days and this right shall
be set forth in the contract.
12) Provides that a seller of health studio services may
draw on the money it holds in trust to pay refunds to
consumers or, if the money is offset by a surety bond filed
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with the Secretary of State, to pay for other purposes. The
bond shall be in favor of the State of California for the
benefit of any consumer harmed by a violation of the
provisions in this bill.
13) Exempts sellers of health studio services from
holding moneys in trust if at the time the money is received
from the consumer, the seller has at least five health studio
facilities in operation in this state that have been operating
for a period of at least five years, and that has current
tangible assets, based on book value, that exceed current
liabilities by at least $1 million.
EXISTING LAW defines a "contract for health studio services" as
a contract for instruction, training, and other services, a
contract for the use by an individual patron of the facilities
of a health studio, gymnasium or other facility, or a contract
for membership in any group, club, association, or organization
formed for these purposes. A consumer may cancel a contract
within three business days after the contract is executed or if
the agreed upon services are not provided within six months. A
contract for health studio services is prohibited from requiring
a consumer to pay an amount in excess of $1,000, excluding
interest and finance charges.
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal.
COMMENTS :
Purpose of this bill . According to the author, current law
regarding health club contracts was enacted in 1961 and has not
been changed to any significant degree since 1980. The growth
of health clubs, and those who purchase memberships to these
clubs, has grown significantly since that time. Today nearly 40
million people belong to more than 24,000 health clubs in the
United States with over $14 billion in revenues received from
the public. This is in sharp contrast to only 15 years ago when
only about 20 million people belonged to about 13,000 health
clubs. The author points out that since enactment of the health
studios law in 1961, many changes have occurred in the overall
costs of joining health clubs, the facilities and services
provided, and the type of contracts that consumers enter into
with these clubs.
The author argues that consumers are being locked into health
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club contracts without an opportunity to consider whether they
want to continue using the services and facilities of the health
club and are not given adequate opportunity to cancel the
contract if services or facilities are not provided as
advertised or as promised or, if at some later time, services
and facilities are substantially reduced or eliminated.
Consumers sometimes give into high pressure sales tactics, and,
in some instances, feel obligated to sign a contract immediately
without adequate time to actually use the services or facilities
or to think about whether they want to continue their
membership. Also, fees may be paid up-front for a health club
that never opens or goes out of business at a later date and
consumers have no recourse but to seek legal action to collect
fees that have already been paid. Because seeking court action
is difficult, if not impossible for many, consumers are
basically left with worthless prepaid memberships.
The author also points out that permissible contract amounts for
health clubs have not changed since 1980, and are not reflective
of the current initiation and membership fees charged by health
clubs. Most health clubs have had to come up with ingenious
ways of charging the appropriate fees to cover facility
expansion and increased services provided to the consumer. The
current cap of $1,000 on contract amounts charged by health
clubs is outdated and confusing for consumers who may want the
flexibility to pay over time rather than being locked into
higher up-front initiation fees and monthly payments.
Related legislation . AB 602 (Spitzer), 2005-06 Session, would
require that when a health studio is sold or transferred to
another health studio, the consumer shall be given the option of
receiving a refund or a new contract on the same terms as with
the new owners of the health studio. AB 602 is currently
pending in the Senate.
Previous legislation . AB 588 (Correa), 2003-04 Session, would
have required the existing $1,000 limit on health studio
services contracts to be adjusted annually according to a
specified consumer price index. AB 588 was held on the Senate
floor.
AB 356 (Correa), 2001-02 Session, would have made various
changes to the health studio contract law, including raising to
$2,000 the monetary limit on how much a health studio may charge
a consumer for health studio services. AB 356 was held on the
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Senate floor.
AB 357 (Correa), 2001-02 Session, would have increased the
statutory limit on the amount of a contract between a health
studio and a member, and required, under specified conditions,
that a health studio maintain a surety bond and provide a pro
rata refund to a member who cancels a contract. AB 357 was
vetoed on October 8, 2001.
SB 1744 (Murray), 1999-2000 Session, would have provided that
health studios could enter into contracts in excess of the
existing $1,000 limit if certain surety bond requirements were
met. SB 1744 was vetoed on September 24, 2000.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County, and Municipal Employees
Opposition
None on file.
Analysis Prepared by : Pablo Garza / B. & P. / (916) 319-3301