SANTA ANA, Calif. — Orange County District Attorney (OCDA) Tony Rackauckas, in a joint prosecution with Contra Costa District Attorney (CCDA) Diana Becton, has obtained nationwide restitution and a $1.3 million consumer protection settlement against 24 Hour Fitness, Inc., (24 Hour) resolving allegations of misleading and unfair business practices relating to the company’s sale of prepaid membership contracts. The contracts required large up-front fees in exchange for low guaranteed annual renewal rates that 24 Hour began raising in 2015, which was allegedly contrary to what was promised to the prepaid members by 24 Hour sales representatives. The settlement was filed yesterday in Orange County Superior Court and awaits signature by a judge.
24 Hour Fitness is headquartered in San Ramon, California, and has over 400 membership fitness gyms in 18 states, including 140 locations in California. The allegations against 24 Hour Fitness state:
- Between 2006 and 2009, 24 Hour sold prepaid memberships in a false and misleading manner when 24 Hour sales representatives took large up-front fees for an initial two or three year membership period. They represented that by doing so, the member would be guaranteed a low life-time annual renewal rate for life, so long as the member remained in good standing by paying their annual renewal fee on time.
- The fixed annual renewal rates on these prepaid memberships ranged between $29 and $199 a year, with up-front fees ranging from $600 to over $1,400.
- For several years prior to April of 2006, 24 Hour sold these prepaid memberships, and had members sign a contract that clearly stated their annual renewal rate would not be increased if the member remained in good standing.
- Beginning in April of 2006, 24 Hour made changes to the language of their prepaid membership contracts. The People alleged, although these new contracts included language that the annual renewal rate could be increased, these contracts did not make this language clear to members or defendant’s sales representatives.
- Despite this change in contract language, 24 Hour’s sales representatives continued to sell these post-April 2006 memberships by telling customers their annual rates were guaranteed to remain fixed for life, so long as the member remained in good standing.
- Contrary to these representations, beginning in 2015, 24 Hour began increasing annual renewal rates on many of these post April 2006 prepaid memberships.
- For the first time in years, these members’ annual renewal rates were increased by 100, 200, or 300 percent.
- When members complained and informed 24 Hour that a salesperson told them their up- front fee entitled them to a lifetime low annual rate, 24 Hour refused to honor these members guaranteed rates, and these memberships were either terminated or the member was forced to pay the increased rate.
The Settlement requires that:
- 24 Hour’s Settlement Administrator must send all past and present 24 Hour Fitness members who purchased these post 2006 prepaid membership contracts, or were updated to these contracts, and either paid the increase or were terminated for failure to pay the increase, a notice with instructions on how, where and when to submit a claim form and declaration to obtain restitution.
- 24 Hour will allow all of these prepaid members who return the claim form and declaration sent to them to renew their memberships at the promised low annual lifetime renewal rate, and to provide them with refunds equivalent to the difference between the new rate and the old promised rate, for all the years they were required to pay the higher renewal rate.
- If any of these members who submit the claim form and declaration were terminated because they refused to pay the higher renewal rate, 24 Hour must reinstate the membership at the original low annual renewal rate.
- 24 Hour pay a total of $1.2 million in civil penalties and $100,000 in costs to the Counties of Orange and Contra Costa and be permanently enjoined from making any false representations or engaging in any unfair business practices in the future.
If you receive a notice, it means you have one of the new contracts that allows for the increase, even if your rate has not yet been increased. If you were promised a lifetime guaranteed annual renewal rate, you must fill out the claim form and declaration that will be sent to you to preserve or reinstate your guaranteed annual renewal rate. The restitution provisions of this settlement extend to qualifying prepaid members nationwide.
24 Hour Fitness admitted no wrongdoing in the Settlement Agreement.
Deputy District Attorney Michelle Cipolletti from the OCDA Consumer Protection Unit and Dodie Katague from the CCDA Consumer Protection Unit prosecuted this case.
*Joint prosecution with Contra Costa District Attorney
Orange County District Attorney / November 2, 2017