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Law Talk: Pre-paid Memberships

June, 2010

Have you ever signed up for a gym, modeling lessons, or dance classes? Lots of people get great deals by pre-paying up front, but when they want to cancel their memberships, they get hit with a refusal and not a lot of options.

Luckily, the Consumer Protection Act 2002 offers some protection for consumers facing problems with companies that offer services like gyms, martial arts, sport and dance classes, employment schemes and even dating services. The Act does not apply to non-profit or government organizations, private clubs operated by their members, or golf clubs.

Watch out for pressure tactics when signing up for any pre-paid service. You want to make sure you are getting quality for your money, so if a gym has poor equipment and facilities, it is probably not the place you want to be. When signing up with modeling agencies, make sure you know that you are dealing with a reputable company--those advertising in the classifieds probably are not the best in the industry. You should check out the Acting and Modeling Information Service (www.amisontario.com) before signing up with an agency or agent. AMIS is a watchdog for the industry, with lots of information about common scams and ethical agent behavior.

With every pre-paid agreement for services covered by the Act, for payments over $50, there is a ten-day cooling-off period where you can cancel at any time, for whatever reason, with no penalties. This time period starts when you receive a copy of the contract or when all the services under the contract are available to you, whichever is later. So test out the goods you will be getting under the agreement and see if the contract is worth it for you. If you would like to cancel within the ten-day period, it is best to cancel in writing. If you do not receive an actual copy of the agreement, you have one year to write a letter saying you want out.

Also, initiation fees cannot be more than twice the annual membership fees, and you do not have to pay more than once.

The length of a membership cannot be longer than one year, and a club must give you the option of paying in monthly installments. This protects consumers from paying a massive lump sum to a company that might go bankrupt. However, keep in mind that a service provider can charge up to 25% more if you choose to make monthly payments instead.

What if you cancel and they refuse to refund your money? The first step is to contact the business directly with a written complaint. Be sure to keep proof of the delivery of your complaint. This is important because the Ontario Ministry of Consumer Services wants to see that you tried on your own before helping you.

If you were careful to follow the guidelines for cancellation in the Act, and if they still refuse to pay after receiving your written complaint, you have the right to commence legal action to recover the full amount. Submit a letter of complaint to the Ministry of Consumer Services--they have broad powers to inquire about your situation and can make an order directing a person to comply with the Act if it is reasonable to believe that they have broken the rules of the Act.

Anyone who has been convicted of an offence under the Act can be liable for a fine up to $50,000, up to two years' imprisonment, or both. A corporation can be fined up to $250,000.

To contact the Ministry, you can go to www.ontario.ca and click on Consumer Protection or call 416-326-8800 or 1-800-889-9768; TTY: 416-229-6086 or 1-877-666-6545.

This column provides legal information only and is produced by the students of Community Legal Services and Pro Bono Students Canada (UWO). If you need legal advice please contact a lawyer, community legal clinic or the Lawyer Referral Service at 1-900-565-4LRS.