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Peak Fitness Blocked From Charging Advance Payments

North Carolina Attorney General stops health club as lawsuit looms

June 1, 2009
Facing a lawsuit, health club chain Peak Fitness agreed to stop selling prepaid gym memberships in North Carolina until the company can secure bonds for each health club. North Carolina Attorney General Roy Cooper said hard times make it more important than ever to follow the rules.

"Consumers shouldn't be left out in the cold when their health club closes," Cooper said. "These clubs must follow the law before they take upfront money from new members."

Cooper filed suit against Peak Fitness last week, obtaining a consent judgment. Under the consent judgment, Peak Fitness and its owner Jeffrey R. Stec are barred from selling prepaid gym memberships until the company gets adequate bonds for each health club. Peak Fitness can continue to operate but can only collect money from customers who pay month to month for their membership.

Cooper's office was notified in March that Peak Fitness' bonding company was canceling all of Peak Fitness' bonds as of May 12. Peak Fitness has not been able to secure replacement bonds. These bonds are required by state law to reimburse consumers if the health club closes and the company doesn't have money to refund consumers who paid in advance.

In addition, Peak Fitness is required to submit sworn statements of liability to the Attorney General's office twice a year. These statements are used to determine the amount of bond necessary. In March, Peak Fitness did not submit sworn statements for all health clubs and understated its liability by approximately $2 million in the statements that were submitted.

Earlier this year, Cooper entered into a consent judgment with Peak Fitness that made substantial changes to customer service, contracts and billings at all 28 of its health clubs across North Carolina. Peak Fitness agreed to designate a single point of contact to handle consumer complaints, clearly post contact information for Peak's billing company, give advance notice to gym members and the Attorney General's office when a health club closes or transfers memberships, and purchase and maintain appropriate bonds for each health club.

Since January's consent judgment, Peak Fitness has abruptly closed gyms in Charlotte, Garner, Knightdale, Raleigh and Winston-Salem. Also, Peak Holdings, a subsidiary of Peak Fitness, filed for Chapter 11 bankruptcy in April.

In the past five years, Cooper's office has received more than 500 complaints regarding Peak-related health clubs.

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