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New CA Law Raises Price Cap

BOSTON — Come January 2006, the $1,000 contract price cap for health club services will be lifted in California, opening a path for higher membership fees for those in the high-end market.

“I don't know of another industry that is told how much they can charge,” said Kevin F. Buckley, deputy director of government relations at the International Health, Racquet & Sportsclub Association (IHRSA), which lobbied for lifting the cap. “The market takes care of that.”

In early October, the California legislature passed a law that would raise the price cap to $3,000 in January and $4,400 in 2010. The law no longer considers optional services to be part of the contract, does not place limits on month-to-month contracts and extends the cooling off period from three to five days, according to an IHRSA memorandum on the new law.

Contracts must be written allowing 20 days to cancel for consumers with contracts for more than $1,500. Consumers with contracts in the range of $2,000 to $2,500 now have 30 days to cancel while those with contracts above $2,500 have 45 days to cancel. All consumers who cancel are to be granted pro rata refunds.

Club One has 12 clubs in northern California and six fitness locations in southern California and is pleased with the new legislation.

“We think the new law makes good sense as the previous limits were very outdated based on the pricing structure of most high-end, quality clubs,” said Bill McBride, vice president of Club One Inc. “While we don't do very many pre-paid memberships, the new limits allow for more flexibility with members that wish to pay for their club memberships in advance.”

Not all California clubs are excited though. California Family Fitness has 13 locations in California and offers pay-as-you-go monthly contracts. Because of this setup, Kelly Tan, general sales manager of one of the California Family Fitness clubs in Sacramento, said the new law could pose some risks when it comes to refunds.

“In terms of commissions it benefits me, but unless I can provide that business well [enough that a customer doesn't want a refund], then providing a dues credit or a refund is a dangerous position to put yourself in, especially if you're a little club,” Tan said. “Can you imagine giving a $3,000 refund to someone?”

Tan also said the legislation should be focused on more than just finances.

“Instead of talking about money and contracts, let's focus on the real things, like building our industry and creating health benefit packages for group exercise instructors and personal trainers and contractors.”

Illinois and New York are the only other states with a price cap. Illinois has a $2,500 cap on health club services, and although the state's Senate passed a bill to exclude optional services and clarify that the bill is per person, the Illinois governor vetoed certain sections of the bill in mid-August. IHRSA is lobbying to override the veto, Buckley said. New York has a $3,600 cap on health club membership contacts. IHRSA plans to reintroduce legislation in 2006 to eliminate the cap in New York, Buckley said.

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