24 Hour Fitness Hit with $1.2 Million Penalty Over Shady Sales Tactics

MARTINEZ (CBS SF) — San Ramon-based 24 Hour Fitness must pay $1.2 million in civil penalties and also make restitution to members “misled” by its sales tactics, the Contra Costa County District Attorney’s Office said Thursday.

Along with the Orange County District Attorney, the office reached a consumer protection settlement with the fitness chain Wednesday, according to Contra Costa County District Attorney Diana Becton.

“The settlement prevents us from having to file a lawsuit,” said Dodie Katague, Contra Costa County’s deputy district attorney.

24 Hour Fitness denies any wrongdoing, the fitness chain said in an e-mailed statement.

“We have settled this matter so that we can continue to focus on our mission to help people improve their lives through fitness,” the company said.

In addition to the $1.2 million in penalties and $100,000 in costs to the DA’s offices, 24 Hour Fitness must also pay restitution to those members who were “misled” by shady practices, according to Becton’s office.

The members “were misled by the promises of a low lifetime annual renewal rate in exchange for large up-front membership fees,” Becton said.

The restitution could be a breathtaking sum, given that the chain has four million members. The number of members affected by the alleged practices is unknown.

“It’s the restitution that’s the big issue,” said Katague.

Katague said between 2006 and 2009, 24 Hour Fitness sales representatives took large up-front fees for an initial two- or three-year membership period, with the promise that the member would be guaranteed low dues for life, as long as they paid on time.

The up-front fees ranged from $600 to over $1,400, the district attorney’s office said, and guaranteed that the members’ annual dues would always be between $29 and $199 a year – rock-bottom-low rates for gym memberships.

In 2006, the fitness chain changed its contract language to allow for annual rate increases – but continued to sell memberships with verbal promises of lifetime fixed annual renewal rates, Katague alleged.

When rates started going up in 2015, members deluged 24 Hour Fitness, the Better Business Bureau and the district attorneys with complaints, Katague said.

“They also started a petition on Change.org,” the deputy district attorney said. The petition, signed by nearly 3,000 members, is online at http://bit.ly/1S067Rn

The district attorneys’ offices launched an investigation in response, Katague said.

“We decided this was something we had to look into. We had our investigators talk to the members and employees and asked them, ‘How were you selling these in 2006 and 2009?’ and it became clear to us that they were selling them with the promise of a lifetime guarantee,” he said.

In response, “24 Hour Fitness has cooperated with the Orange County and Contra Costa County District Attorney offices. The membership product in question was offered over 8 years ago and the rate increase is consistent with the contract terms,” the company said in its e-mailed statement.

“This resolution nonetheless addresses the concerns raised by some members who say that a sales representative made verbal representations inconsistent with the written contract terms,” the company said.

The settlement requires that 24 Hour Fitness allow pre-paid members to renew their memberships at the promised low annual lifetime renewal rate, if the member submits a claim form and declaration that they were told by a 24 Hour sales representative that their annual rate was guaranteed to remain the same for life.

All past and present 24 Hour Fitness members who bought post-2006 pre-paid membership contracts, or were updated to those contracts, and either paid the increase or were terminated for failure to pay the increase, will get instructions via email or U.S. Mail with instructions on how, where and when to submit the forms and declarations.

The deputy district attorney said he could not estimate how many 24 Hour Fitness members may have been affected.

“How many were misled, I don’t know. We will know once we get the declarations,” he said.

“All past and present members will be sent a notice” of the settlement, he said. Those who have been affected by the allegedly misleading practices should fill out the form they will receive, Katague said.

“Even if your rates have not been raised yet, if you were made the promise, you need to go ahead and file a form, a declaration that preserves your right to have the low rates,” he said. “Otherwise, they will raise your rates, because it’s in the contract.”

© Copyright 2017 by CBS San Francisco and Bay City News Service. All rights reserved. This material may not be published, broadcast, rewritten or redistributed

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