The Commerce Commission has put the gym industry on notice that it is monitoring the compliance of gym membership contracts with the Credit Contracts and Consumer Finance Act 2003.
On 1 August 2011, the Commerce Commission announced that it had received complaints from consumers who had tried to cancel gym memberships. The Commission has since investigated the membership contracts of 13 randomly chosen gyms across the country. The Commission's investigation concluded that 12 of the 13 contracts were likely to breach the Act, because the contracts did not disclose all the information required to be disclosed under the Act.
What is the Credit Contracts and Consumer Finance Act 2003
The Credit Contracts and Consumer Finance Act 2003 (Act) is a law designed to protect the interests of consumers in relation to consumer credit contracts. The Act seeks to ensure that there is appropriate disclosure of key terms in consumer credit contracts, and provides rules relating to fees which may be charged under a consumer credit contract.
Are gym membership contracts covered by the Act?
The Commission has taken the view that gym membership contracts which are paid by instalment and are subject to fees or interest are likely to be consumer credit contracts, and subject to the Act.
What do consumer credit contracts need to disclose?
The Act sets out certain information which consumer credit contracts must disclose. This includes information such as the initial unpaid balance under the contract (i.e the full cost of the contract for the minimum period), the method of charging interest, a description of the credit fees and charges that may be payable under the contract, and a description of the consumer's right to cancel the contract.
This information must be provided to the consumer within five working days of the contract being entered into.
What happens if a gym membership contract does not comply with the Act?
The Commerce Commission has urged the gym industry to take legal advice. This has come with a warning that the Commerce Commission may take enforcement action in the future.
The Commerce Commission has the power under the Act to investigate where it considers there may be a breach of the Act. This can include requiring a business or individual to provide documents to the Commerce Commission, or to attend interviews with the Commerce Commission. The Commerce Commission can also choose to issue Court proceedings if it considers there is likely to be a breach of the Act.
It is important to note that consumer credit contracts which do not comply with the Act may not be enforceable.
What penalties could apply?
A breach of the disclosure requirements under the Act is a criminal offence. If the Court determines that a breach of the Act has been committed it can order statutory damages, and a maximum fine of $30,000 per breach.
If the Commerce Commission considers that the gym membership contract has also mislead consumers, it may bring charges under the Fair Trading Act 1986. Fines under the Fair Trading Act can be up to $200,000 per breach for a business.