Transparency and full disclosure are the basis of most consumer protection laws. Companies must tell their would-be customers everything they need to know, so that they can make an informed decision about buying their product or committing to a contract with them over a number of years.
When it comes to a contract, that means how much they are going to have to pay every month, for how many months, and what it will cost them if they want to exit the contract before the term is up.
The devil lies in the small print.
And sometimes, as I discovered recently, that small print is the devil because it doesn’t tell you exactly what it will cost you not only to escape a contract, but by how much your agreed monthly fee could increase.
When it comes to gym contracts, I always urge people to sign the shortest possible contract term unless they are committed gym goers. That’s because, worldwide, about 90% of people quit after three months of going to gym.
So yes, the salesperson will tell you that your monthly fee is far cheaper if you sign up for two or even three years, rather than just 12 months, but for the vast majority of people, it’s actually the most expensive option because they stop going after just a few months, but are legally obliged to keep on paying for the full term, or pay a hefty cancellation penalty.
How hefty? I’ve been urging people to find out what a gym’s cancellation penalty is before signing up, because I’ve heard of some who charge as much as 75% of the subscriptions for the remaining months of the full term.
But I’ve discovered that some gyms, including the mighty Virgin Active, don’t specify their cancellation penalty in their contracts.
The Consumer Protection Act states that fixed term contracts must not be for a period longer than 24 months, unless the provider can prove that it is to the consumer’s financial benefit.
All they disclose is that it will be a “reasonable” cancellation penalty, which is what the Consumer Protection Act prescribes. And there’s another reason signing a 12-month contract is the best option — you can’t be blindsided by an “annual” fee increase.
I say blindsided because the annual increase may be in the contract Ts and Cs, but without any mention of the increase percentage.
Talk about signing a blank cheque!
Sophie of Durban signed a Virgin Active contract last January, committing to pay R488 a month.
Shortly after her 22nd birthday in November, she was notified that as she’d moved into a new age bracket, her monthly fee would increase from R488 to R492. She had no problem with that.
But in January she got another email saying that because she’d entered the second year of her 24-month contract, her fee would be increasing from R492 to R610 a month.
A 25% increase!
When I queried this with Virgin Active, I was told: “Annual increases are part of our general terms and conditions and apply across all our membership options. In the past five years, our average price increases haven’t exceeded 7% but again, numerous factors beyond our control impact on the price increase, least of which is inflation.”
In Sophie’s signed contract, an annual increase is stipulated, the company said.
“Though we cannot determine the increase at the time of the contract, members are notified ahead of the price increase coming into effect.
“Club-type and membership types are evaluated against inflationary factors. There is not a blanket increase across our estate of health clubs.”
Pushed to disclose details about the cancellation fees, Virgin Active obliged.
“The cancellation fee applied is a two-month membership fee for contracts with an initial period of 12 months or a four-month membership fee for contracts with an initial period of 24 months.” That should be in the contract so people can make an informed decision.
So, if Sophie decides that she can’t afford that surprise 25% increase in her fee for the second half of her two-year contract, and that she would like to cancel her membership, she will have to come up with penalty payment of R2,440 to do so.
So I’m telling those who’re thinking of signing 24-month gym contracts what the salespeople will not say: your monthly fee may go up in the second year, but they aren’t telling you by how much, and if you can’t afford the increased fee and want to cancel, you’re going to have to pay a cancellation penalty of a few thousand rand.
In the past week, I also heard from Andriaan, who signed a 36-month gym contract with the Gym Company in Roodepoort last November and now wants to cancel as he is moving to Mpumalanga to take up a new job.
The fitness company has 22 gyms countrywide, but no branch in the area Andriaan is moving to.
He’s been told to pay 20% of the 32 months remaining on his contract, which amounts to R12,768. See how big that number is when it’s a 36-month contract.
Andriaan approached me for help, and I took up his case with the general manager of the Roodepoort branch, Wynand Foord.
I asked him why the cancellation fee is not disclosed in the contract — all it says is “Please note that we charge a ... reasonable early cancellation fee”. A cancellation penalty of 20% may be reasonable in the fitness industry, but not when it is applied to a 36-month contract.
The Consumer Protection Act states that fixed term contracts must not be for a period longer than 24 months, unless the provider can prove that it is to the consumer’s financial benefit.
How is your 36-month contract justified, given that a huge percentage of gym members stop attending gym long before 24 months, let alone 36 months?
What percentage of those who sign up for 36 months are still using the gym in year three?
Foord said the gym also offers 12 and 24-month contracts, but that the 36-month contract was a R100 per month saving over the 24-month one.
That sounds good, but doesn’t account for the fact that most people won’t be gymming in year three.
“It is hard to keep track of that,” Foord said in response to my question about dropout rates.
As for the lack of disclosure about the cancellation penalty, he said: “Cancellation penalty fees cannot be stipulated on the contract as it needs to be calculated on the remaining months.”
And then he gave me the information which can and should appear in the contract: for 36-month contracts, it’s 20% of remaining subscriptions for cancellation in the first year; 30% in the second year and 40% in the third year.
He invited Andriaan to take up his complaint with “the ombudsman” or his lawyers.
What you don’t know can come back to bite you. Hard.
So interrogate all these things before signing up.
You may work out that the club workout route isn’t worth the financial risk.
CONTACT WENDY: E-mail: consumer@knowler.co.za; Twitter: @wendyknowler; Facebook: wendyknowlerconsumer
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