Legislation is Pending on Automatic Renewal Laws that May Impact Gyms
The COVID-19 pandemic has had unprecedented impacts on the gym industry. This includes the closure of virtually all health clubs across the country. Several state legislatures are currently considering bills that would enact or expand upon automatic renewal laws. There have been lingering concerns over surprising and difficult cancellation procedures from the pandemic. This article will cover: what is an automatic renewal law, how does it work, and what gyms need to know.
What is an Automatic Renewal Law?
Automatic renewal laws are a type of contract law that allows for continuous contracts without requiring additional affirmative consent from the parties. Essentially, this means that if you sign up for a gym membership – your membership automatically renews unless you take proactive steps to cancel it before the end of your contract period.
How Automatic Renewals Became a Standard
Automatic renewals have become a standard practice for health clubs and many other businesses over the years. This clause means that memberships automatically renew with no notice or consent from the member. In the past, gyms have faced difficulties retaining new members after they’ve signed up for a membership. This ultimately led to many gyms closing and inevitable bankruptcies. The establishment of automatic renewal in gyms was for the sake of sustaining a customer base and preventing cancellations.
The Pros & Cons of Automatic Renewals
The selling point for automatic renewals for consumers is how convenient it is. The auto-renew feature has some benefits as it guarantees your service or membership won’t lapse. The benefits for businesses however are far greater. Businesses know that the vast majority of people will not bother with the hassles of canceling a subscription. In truth, many people will continue to take services from a company without realizing that they still have an active account- and this is just free money for the service provider. One problem with automatic renewals is that they rely on a “negative option feature” to work. If the customer does not cancel an agreement, it will be assumed that they want to continue receiving the service.
Instead, state and federal laws should include a mandatory annual opt-in. Once a year, consumers must be asked if they would like to continue their membership or not. This way businesses can not take advantage of the consumer’s lack of attention towards their subscriptions.
How Gyms Have Responded to Membership Contracts During the Pandemic
Most health clubs have been working to accommodate their members during the closures. However, some gyms have inspired increased legislation due to their billing and cancellation policies. Despite the state of emergency and stay-at-home orders, the gyms did not change their policies. They outraged the public by continuing to charge members for membership when they weren’t able to access the club. A few clubs across the country are currently facing lawsuits over the issue. However, in one instance, the IHRSA said that the Arizona Attorney General responded to a handful of gym operators urging them to make their cancellation policy more transparent and fair. There have not been recent legislative considerations for this topic, but the interest shown by Arizona’s Attorney General indicates future legislation.
New Legislation Bringing Necessary Change
Currently, 12 states have introduced legislation that seeks to establish new laws on automatic renewal or expand existing legislation. A bill recently introduced in the New York Assembly shows what could be ahead for gyms. According to IHRSA, The NY A.8860 could change the law to require health clubs to put in place 3 new policies. The legislation would require that gyms allow members to cancel contracts with 30 days’ notice. They would also have to refund the member per the canceled contract within 48 hours of receiving notice. The third stipulation would require the business to accept the cancellation by phone, email, or mail.
The fact is that all of these requirements should already be standard procedure.
Next Steps
In recent years, there has been a rise in lawsuits filed against gyms for their automatic renewal policies. Legislation is pending on whether or not automatic renewal will be allowed in gyms as it currently stands. The law would require gyms to obtain permission from customers before automatically renewing their contracts after the initial contract expires. But some gym owners oppose this change because of how much it could affect gym owner profits and employee’s salaries.
The actions taken during the COVID-19 pandemic will have a huge impact on how the world functions in the aftermath. Amid the flurry of legislation in this area, it is becoming abundantly clear that state legislatures are increasingly focused on regulating contracts with automatic renewals. It is becoming apparent that maintaining compliance with set legislation is an ongoing process. A well-established system for staying up to date with the latest changes will be necessary if you want to maintain compliance. While the issue may not be of imminent concern, clubs should work to ensure that they are taking care of their consumers now so it does not become a larger problem in the future.
Automatic Renewal Laws by State
Alabama
No current law
Proposed bills
HB405 – 1 by Representative Wood; STATUS: First Read: 3/14/2017.
Overview: The bill relates to service contracts and aims to:
(1) Provide for notice of automatic renewal provisions in service contracts.
(2) Provide for notice to a consumer prior to the automatic renewal of a service contract.
(3) Provide for exemptions.
(4) Provide that failure to provide notice shall render the automatic renewal provision of a contract void and unenforceable.
If passed, the bill would require that automatic renewal provisions:
(1) “Disclose the automatic renewal provision clearly and conspicuously in not less than 14-point bold type in the contract or contract offer.” (2) If pursuant to a service contract of 12 months or more that automatically renew for a specified period of more than one month, shall “provide the customer with written or electronic notice” of the automatic renewal provision (no less than 30 days, but no more than 60 days before deadline). (3) Must disclose clearly and conspicuously:
(a) That unless the customer cancels the contract, the contract shall automatically renew.
(b) How the consumer may obtain details of the automatic renewal provision and cancellation procedure, including contact information of seller (telephone number or address)