The Broad Applicability of Health Spa Requirements to Traditional Gyms under the Kentucky Consumer Protection Act
By: Laura M. Shahan, Associate
By enacting Kentucky’s Consumer Protection Act (the “CPA”), the General Assembly intended to protect the interests of the public, as consumers and sellers of goods and services, by establishing the Office of Consumer Protection within the Office of the Attorney General (“OCP”). The OCP is designed to oversee both preventive and remedial programs to protect consumers. The OCP enforces the CPA by bringing lawsuits in the public interest to obtain civil penalties and consumer redress, including restitution and injunctive relief aimed at changing what the OCP views as bad business practices. A variety of industries fall under the purview of the OCP, including funeral homes, cemeteries, health spas, and gyms.
The three primary points of compliance for health spas under the CPA are annual registrations, a surety bond, and statutorily required language that must be contained within membership contracts. The CPA defines a “health spa” very inclusively, and the definition encompasses businesses that the general public would likely consider as a “gym” more so than a “health spa”. Under the CPA, a health spa is defined as a for-profit business with a primary purpose, service or facility that purports to “improve the user’s physical condition or appearance” through sports, exercise, exercise programs, or fitness training, and includes establishments that offer facilities like saunas, weight-lifting or fitness equipment, ball courts, or tracks.
Those intending to open or operate a health spa in Kentucky must file a registration statement annually with the OCP, and also provide a surety bond to the OCP prior to selling any memberships to the health spa. Each separate health spa location is required to file annual registration statements and submit the mandatory surety bond, even if the various locations are owned or operated by the same owner.
By requiring each health spa to provide a surety bond, which is held in escrow by the OCP, the CPA provides a mechanism for redress to compensate consumers who lost money they paid for memberships when they did not receive the appropriate or expected services. The bonds are required in the event that the health spa has collected money from memberships, but does not remain open and operating, or does not open at all within ninety (90) days from the date that the first membership contract was entered into. The amount of the surety bond required is calculated based on the number of unexpired membership contracts of the health spa. However, health spas that otherwise would be required to provide a surety bond are exempted if there is no initiation or similar non-reoccurring fee charged at the beginning of the contract term or renewal period.
The CPA seeks to promote fair practices in selling consumers health spa membership plans by requiring health spas to disclose certain information to prospective members and placing parameters on the terms permitted in membership contracts. The health spa must present a “comprehensive list” of all membership plans offered for sale and this list is required to be shown to prospective members and the health spa may not sell a membership plan not included on the list. A health spa may not offer specials or discounts to members unless they are made in writing and are equally available to all prospective members. Additionally, membership contracts for health spas must contain specific, statutorily required language that is an effort to put the consumer on notice of their cancellation rights under the CPA. In addition, there are durational limits for the membership contracts, such as, no contract term may exceed 36 months from the effective date and no member may be required to pay for a period in excess of 36 months.
As part of its mission to protect consumers, the CPA’s health spa compliance mechanism seeks to provide potential members with notice of their statutory rights and offer compensation in the event of a health spa’s insolvency. While the portion of the CPA relating to health spas has specific statutory requirements that owners and operators must follow, the three components consisting of an annual registration with the OCP, a surety bond, and the inclusion of certain language within membership contracts are not overly complex to navigate and manage. However, many health spa owners and operators may not be aware of these requirements simply because an owner or operator of a traditional fitness studio or gym might reasonably not realize that a provision in a statute entitled “health spas” would necessarily apply to their fitness facility.