Business Practices Committee Report 70

It is not known how many fitness centres operate in South Africa.Industry guesstimates place the number at more than 400. They range from small one-man businesses operated from the owner’s home to fitness centres with sizeable memberships. Some of those with extended memberships provide fitness assessments, exercise programmes, diet consultation, swimming pools, sporting facilities, personal training and child care. The fitness industry is not subject to industry-specific regulation. It is characterised by its reliance on prepaid membership arrangements. Casual membership which is paid on a month to month basis exists, but such cases are extremely rare. Fees for twelve month fitness centre memberships are typically in the range of R800 to R1 600.

The industry has a number of bodies or associations which represent the interests of various interest groups. While each body apparently endeavours to improve standards within the industry, they do not have the statutory backing that could enable them to effectively address consumer protection issues in the industry.

It was found that the majority of fitness centres sold "life memberships" or memberships for periods exceeding three years. In many cases the membership "lifespan" exceeded the duration of the fitness centres’ lease agreements with their landlords. The implication was that the landlords might not have extended the leases, thus putting consumers with "long" memberships at financial risk. The impact of fitness centre closures on consumers, and the high pressure selling tactics were the primary issues of concern to the BPC.

Many complainants alleged that they were disillusioned by the selling tactics employed by the sales representatives or consultants of the fitness centres. In the majority of cases the consultants were remunerated on a commission basis only. Prospective clients were called by telemarketers and told that they had won a prize. The prize could only be awarded should the prospective client report to a consultant at the centre and take out a membership of the centre.

Usually the prizes were insignificant, such as water bottles and towels, although television sets and holiday accommodation were at times held out as prizes. The major prizes were:

Prospective clients who visited the consultants were usually informed that the discounted memberships were available on that particular day "only" and that, should they not sign the application form immediately, the "remarkable offer" would lapse. This resulted in prospective clients being harassed into signing the contracts under pressure. The prospective clients who argued that they could not afford the memberships were encouraged to pay by instalments on their credit cards. Payment by credit card was obviously to the advantage of fitness centres. They received advance payments and thus cash flows for services to be rendered over a number or years or for the natural life of a member. Unfortunately the life cycle of fitness centres appeared to be rather short. Furthermore they did not have to incur the administrative costs involved in collecting monthly membership fees, postage and the issuing of receipts and also do not have bad debts.

It was usually explained by the "sales consultants" to prospective members that their membership fees would be debited to their credit card accounts for, say x months. It would seem that prospective members understood that this procedure was similar to a monthly amount debited to an account by signing a debit order. The fact that it was on budget and the banks would debit the accounts with the total membership fee plus the applicable interest charges were usually not mentioned, nor understood by the prospective clients. Hence, many complainants were under the impression that the membership fee would be paid to the fitness centres by their banks on a monthly basis, thus not involving any interest.

Other complainants, after being pressurised into signing the agreements and having had time to reconsider the consequences, tried in vain to have their agreements cancelled. There were cases where members tried to cancel the agreements during the same day without any success. In other cases members were told that they could cancel their membership agreements whenever they wished to do so or even sell it at a "profit". There were fitness centres who sold memberships arguing that members would make a sound "investment", because the "discounted" membership could later be sold by the member at a higher price. The verbal money-back guarantees offered by the consultants, obviously on instructions from the management, did not materialise and members found it virtually impossible to sell their memberships to others.