North Carolina Cracks Down On Underfunded Health Clubs

In North Carolina, health clubs and other organizations that charge an upfront membership fee are required to set aside enough money to pay back members if they go out of business.

Recently, North Carolina Attorney General Roy Cooper decided to find out just how many clubs were actually doing that.

Cooper's office conducted a statewide enforcement sweep, asking to see a bond or letter of credit to cover certain prepaid contracts in case they go out of business and need money to repay consumers. Twice a year, businesses are required to file sworn statements with the Attorney General’s Office about their bonds.

Left in the lurch

“My office hears every week from people whose gym shut down, leaving them in the lurch,” Cooper said. “Fortunately, North Carolina law requires health clubs to set aside money for refunds and we want to make sure that businesses are following the law so consumers are protected.”

Besides health clubs, dance studios, martial arts studios and dating services are also required to maintain funds to reimburse consumers if necessary.

Cooper’s Consumer Protection Division contacted 28 North Carolina health clubs and related businesses seeking information about their compliance with the law. So far, Cooper has filed lawsuits and entered consent judgments totaling $29,000 with 2 facilities. Three companies have agreed to settlements totaling $5000.

Eleven facilities came into compliance with the law after hearing from the Attorney General’s Office and received a warning letter. Several other health clubs remain under investigation or in litigation with the Consumer Protection Division.

Recent refunds

Former members of several health clubs got their money back recently, Cooper said. Refund checks were issued to former members of Extreme Fitness of Greensboro and Peak Fitness of Winston-Salem . In addition, the Attorney General’s Office has begun the process for getting refunds paid to former members of the Nautilus Family Fitness Center of High Point and Jamestown Fitness of Jamestown, N.C.

The issue has become more troublesome during the recession, when more businesses have gone under. Over the past few years, Cooper said his office has been able to recover more than $500,000 for hundreds of North Carolinians who were members of health clubs, gyms or dating clubs that closed.

If your health club closes unexpectedly, find out if your state also requires these companies to post a bond to reimburse consumers. Check with your state attorney general to see if you qualify for a refund.