SENATE BILL REPORT

SB 5838

BYSenators McDermott, Talmadge, Warnke, Wojahn, Smitherman and Bailey

Regulating sales of health studio memberships.

Senate Committee on Commerce & Labor

Senate Hearing Date(s):February 25, 1987; February 27, 1987

Majority Report:  That Substitute Senate Bill No. 5838 be substituted therefor, and the substitute bill do pass.

      Signed by Senators Warnke, Chairman; Smitherman, Vice Chairman; Tanner, Vognild, West, Williams.

Senate Staff:Bill Lynch (786-7427)

                  March 4, 1987

AS REPORTED BY COMMITTEE ON COMMERCE & LABOR, FEBRUARY 27, 1987

BACKGROUND:

Health studios are not regulated in Washington State.  The office of the Attorney General receives numerous complaints from consumers regarding health studio practices each year.  If certain aspects of health studios were regulated, consumers could make better informed decisions concerning health studio membership.  A number of states currently regulate health studios.

SUMMARY:

A health studio must prepare and provide each prospective member a written list of all membership plans offered by the health studio.  The list must contain a description and the price of each plan.  No health studio may sell a plan not included on the list.  A health studio is prohibited from making special offers or discounts unless they are in writing and available to all prospective members unless it is a special offer or discount offered to a group.

A "health studio" is defined as any person or entity engaged in the sale of instruction, training, assistance or use of facilities which purports to help patrons to improve their appearance through exercise, body building, weight loss, figure development, or any other activity.  Exemptions are provided for institutions of higher education; public schools and approved private schools; persons providing professional services within the scope of their license; bona fide nonprofit organizations which have been granted tax exempt status by the Internal Revenue Service, including the Young Men's Christian Association and the Young Women's Christian Association; and bona fide nonprofit organizations which have members who have meaningful voting rights to elect and remove a board of directors responsible for the operation of the health studio. 

A health studio contract must be in writing and must not require financing by the buyer in excess of 36 months.  No contract may be measured by the lifetime of the buyer.  A copy of the contract and all rules of the health studio must be given to the buyer when the the contract is signed.

A health studio contract must contain:  the name and address of the health studio operator, the date the buyer signed the contract, a description of the services and equipment to be provided, the duration of the contract, the fees to be paid, and clauses which explain the buyer's right to cancel and receive a refund.

A buyer is provided with a three-day "cooling-off period" which allows the buyer to cancel a health studio contract for any reason within three days from when it is signed.

A buyer is relieved from the obligation to pay dues after cancellation of a contract and is entitled to a refund of the unused portion of any prepaid dues.  A buyer is generally entitled to a pro rata refund of a one-time only initiation or membership fee after cancelling a contract.  If a pro rata refund is required, it is computed by dividing the total contract price by the number of weeks in the contract term and multiplying the result by the number of weeks remaining in the contract term.  A buyer must be provided a refund within 30 days after written notice of cancellation.

If a health studio sells memberships before the health studio facility is completed, then the services must begin within 12 months from the date the contract is signed.  The buyer may cancel within the first five business days the facility opens if the contract was sold before the opening of the facility.  All moneys collected by a health studio prior to the opening of the facility must be deposited in a trust account or the health studio may post a bond in an amount determined by the Attorney General.  The failure to maintain a trust account or post a bond constitutes a class C felony.

A violation of the bill constitutes a per se violation of the Consumer Protection Act.  A buyer who prevails in a cause of action is entitled to reasonable attorneys fees.

EFFECT OF PROPOSED SUBSTITUTE:

A health studio may keep the entire one-time only initiation or membership fee if the following conditions are met:

      1)A clause in the contract clearly states that the fee is nonrefundable and the clause is separately signed by the buyer; and

      2)Cancellation of the contract did not occur during the three-day cooling off period or the five-day period immediately after a new facility opens; and

      3)Cancellation was due to some reason other than death, total disability, the health studio closing without a comparable facility being available in a ten-mile radius, or the health studio not being completed by the date stated in the contract.

The trust fund provisions are rewritten to prohibit commingling of operating funds with buyer deposits.

A grandfather clause is added so that contracts entered into before the effective date of the bill are unaffected.

An exemption is provided for written agreements which entitle a buyer to instruction or the use of existing facilities for a period of 90 days or less.

The specific exemptions for the YMCAs and YWCAs by name is deleted.

Clarifying language is added.

Fiscal Note:      none requested

Senate Committee - Testified: Bill Thurston, Bellevue Athletic Club; Al Levine, Seattle Club; Mark Haye, Olympic Athletic Club; Tom Anderson, Anderson's Nautilus; James Schuler, Pacific West; Dick Knight, Pro Club; Juli Daniel and Linda McQuaid, Attorney General's office