§ 4201 Statement of purpose.
The purpose of this chapter is to safeguard the public interest against fraud, deceit and financial hardship, and to foster and encourage competition, fair dealing and prosperity in the field of health spa services by prohibiting false and misleading advertising and dishonest, deceptive and unscrupulous practices by which the public has been injured in connection with contracts for health spa services. This chapter shall be liberally construed and applied to promote its underlying purposes and policies.
§ 4202 Definitions.
As used in this chapter:
(1) "Business day" means any day except a Sunday or legal holiday.
(2) "Buyer" means a natural person who enters into a health spa contract.
(3) "Contract price" means the sum of the initiation fee, if any, and all fees except interest required by the health spa contract.
(4) "Director" means the Director of the Division of Consumer Protection, or a member of the Director's staff to whom the Director may delegate duties under this chapter.
(5) "Health spa" includes any person, firm, corporation, organization, club or association engaged in the sale of memberships in a program of physical exercise, physical fitness, weight control or figure reduction, which offers the use of 1 or more of the following: a whirlpool, weight lifting room, steam room, exercising room or exercising or weight loss device. The term "health spa" shall not include the following:
a. Bona fide nonprofit organizations, including, but not limited to, the Young Men's Christian Association, Young Women's Christian Association or similar organizations whose functions as health spas are only incidental to their overall functions and purposes;
b. Any private club owned and operated by its members;
c. Any organization primarily operated for the purpose of teaching a particular form of self-defense such as judo or karate;
d. Any facility owned or operated by the United States;
e. Any facility owned or operated by the State or any of its political subdivisions; and
f. Any nonprofit public or private school, college or university.
(6) "Health spa contract" means a written agreement whereby the buyer of health spa services purchases or becomes obligated to purchase health spa services to be rendered over a period longer than 3 months, and the seller of health spa services receives payment to cover a period more than 3 months.
(7) "Health spa services" means and includes services, privileges or rights offered for sale or provided by a health spa.
(8) "Initiation fee" means a nonrecurring fee charged at or near the beginning of a health spa membership, and includes all fees or charges not a part of the monthly fee.
(9) "Pre-opening contract" means a health spa contract for services or the use of facilities made prior to the day on which the service or facilities of the health spa are fully open and available for regular use by the members.
§ 4203 Registration.
(a) It shall be unlawful for any health spa to offer, advertise, or execute or cause to be executed by the buyer any health spa contract in this State unless the health spa at the time of the offer, advertisement, sale or execution of a health spa contract has been properly registered with the Director.
(b)(1) Prior to advertising or selling pre-opening contracts, every health spa shall register with the Director and shall notify the Director of the proposed location of the health spa for which pre-opening contracts will be solicited;
(2) The registration shall include the address, ownership, directors, corporate officers and parent corporation, if any, date of first sales and date of first opening of the health spa;
(3) The registration shall be renewed annually; and
(4) Each separate location where health spa services are offered shall be considered a separate health spa and shall file a separate registration even though the separate locations are owned or operated by the same owner, unless the spa offers all members fully interchangeable, comparable services at a separate location within a 15-mile radius.
(c) A bond or letter of credit in the amount of $50,000 shall be posted by each health spa prior to advertising or selling pre-opening contracts. The bond with corporate surety from a company authorized to transact business in the State or the letter of credit from a bank insured by the Federal Deposit Insurance Corporation shall be filed and maintained with the Director. After a health spa has opened its facilities and been in operation for 90 days, the health spa may make application to the Director to cancel or terminate the bond or letter of credit. Unless the health spa has been cited for a violation of this chapter pursuant to the authority granted to the Attorney General or the Director by Chapter 25 of Title 29 or to the Attorney General by § 4220 of this title, the Director shall give consent to terminate the bond or letter of credit within 30 days after receiving the health spa's application.
(d) Upon its application to terminate the bond or letter of credit, the health spa shall pay all fees in accordance with the schedule set forth by § 4204 of this title.
(e) The bond or letter of credit required by this section shall be in favor of the State for the benefit of:
(1) Any buyer injured by having paid money for a health spa contract in a facility which fails to open within 9 months after the date upon which the buyer and the health spa entered into a contract or which substantially fails to provide the services described in the health spa contract;
(2) Any buyer injured as a result of a violation of this chapter.
§ 4204 Health Spa Guaranty Fund.
(a) The Director of the Division of Consumer Protection shall establish and maintain the Health Spa Guaranty Fund in accordance with the provisions of this section.
(b)(1) Upon registering with the Director pursuant to § 4203 of this title and upon renewing its registration annually, each health spa shall pay to the State a fee in the amount indicated below:
|Number of unexpired contracts
exceeding 3 months
|Amount of annual fees|
|199 or fewer||$1,000|
|200 to 499||$2,000|
|500 to 999||$4,000|
|1000 or more||$8,000|
(2) The number of unexpired contracts exceeding 3 months shall be calculated separately for each location where health spa services are offered, unless the spa offers all members fully interchangeable, comparable services at a separate location within a 15-mile radius.
(3) The amount of the fee shall be reviewed annually by the Director, and the health spa shall provide such information as the Director may request in order to ascertain the number of unexpired contracts exceeding 3 months.
(c) Payments received under subsection (b) of this section shall be credited by the State Treasurer to the Health Spa Guaranty Fund and money in the Fund may be invested or reinvested in the same manner as funds of the State Employees' Retirement System, and the interest arising from such investments shall be credited to the Guaranty Fund.
(d) Any buyer having a claim against a health spa may apply to the Director for payment of such claim from the Guaranty Fund, if the claim arises from a failure of the health spa to:
(1) Comply with its contract obligations;
(2) Comply with any provision of this chapter; or
(3) Remain open for the duration of its contracts or provide alternative facilities within 15 miles of the location designated in the health spa contract, if the health spa goes out of business or relocates.
(e) The Director shall provide forms for applications by buyers for payment from the Guaranty Fund. The application shall include the name and address of the health spa, the beginning and ending date of the contract, the price of the contract, the date of the closing of the health spa, the amount and the basis of the claim and a copy of the contract. No application for a payment from the Guaranty Fund shall be accepted by the Director more than 6 months after the date of the closing of the location of the health spa where the buyer entered into the contract.
(f) The Director shall proceed upon such application and if necessary hold a hearing to decide the merits of an application. The Director shall notify the health spa that a claim has been filed by a buyer and the health spa may request a hearing on the merits of the claim. The Director shall hold a hearing if one is requested by the health spa. The decision of the Director shall be final with respect to the application. The Director may hear applications of all buyers submitting claims against a single health spa in 1 proceeding.
(g) The Director shall issue an order requiring payment from the Guaranty Fund of any sum found to be payable upon such application. The total compensation payable from the Guaranty Fund on the closing of any 1 health spa location shall not exceed $100,000.
(h) If the Director pays any amount as a result of a claim against a health spa pursuant to an order under subsection (g) of this section, the health spa's registration shall be suspended and it shall not be eligible to register until it has repaid such amount in full, plus interest at a rate to be determined by the Director.
(i) If the Director pays any amount as a result of a claim against a health spa pursuant to an order under subsection (g) of this section, the Director shall determine if the health spa is possessed of real or personal property or other assets, liable to be sold or applied in satisfaction of the claim on such Fund. If the Director discovers any such assets, the Director may request that the Attorney General take any action necessary for the realization thereof for the reimbursement of the Guaranty Fund.
(j) If the money deposited in the Guaranty Fund is insufficient to satisfy any duly authorized claim or portion thereof, the Director shall, when sufficient money has been deposited in the Fund, satisfy such unpaid claims or portions thereof, in the order that such claims or portions thereof were originally filed.
(k) When the Director has caused any sum to be paid from the Guaranty Fund to a buyer who has entered into a health spa contract, the Director shall be subrogated to all of the rights of the buyer up to the amount paid, and the buyer shall assign all of personal right, title and interest in the claim up to such amount to the Director, and any amount and interest recovered by the Director on the claim shall be deposited to the Guaranty Fund, except as provided in subsection (c) of this section.
(l) If on December 31 of any year the balance of money in the Health Spa Guaranty Fund exceeds $250,000, the Director shall waive fee payments to the Fund for the following year for each health spa which has registered and paid fees for 3 or more consecutive years. If at the end of any fiscal year the balance of money in the Health Spa Guaranty Fund exceeds $350,000, the excess shall be withdrawn and deposited into the General Fund.
§ 4205 Right of cancellation.
Every health spa contract for the sale of future health spa services which are paid for in advance or for which the buyer agrees to pay in future installments shall be in writing and shall contain the following contractual provisions:
(1) A provision for the penalty-free cancellation of the contract within 3 business days of its making and a provision for a refund following such cancellation of all moneys paid under the contract upon written notice by the buyer.
(2) A provision for the cancellation of the contract if the health spa relocates or goes out of business and fails to provide alternative facilities within 15 miles of the location designated in the health spa contract, obligating the health spa to refund to the buyer funds paid or accepted in payment of the contract in an amount computed by dividing the contract price by the number of weeks in the contract term and multiplying the result by the number of weeks remaining in the contract term.
(3) A provision that to cancel a contract in accordance with paragraph (2) of this section, the buyer shall notify the health spa of cancellation in writing, by certified mail, return receipt requested, to the address specified in the health spa contract; that all moneys to be refunded upon cancellation of the health spa contract shall be paid within 30 days of receipt of the notice of cancellation; and that if the customer has executed any credit or lien agreement with the health spa to pay for all or part of health spa services, any such negotiable instrument executed by the buyer shall also be returned within 30 days after such cancellation.
§ 4206 Notice to buyer.
A copy of the signed health spa contract shall be delivered to the buyer at the time the contract is executed. All health spa contracts must be in writing, be signed by the buyer, must designate the date on which the buyer actually signed the contract, must describe the services to be provided to the buyer and shall contain the following written notice in at least 10-point boldface type:
"YOU, THE BUYER, MAY CANCEL THIS CONTRACT AT ANY TIME PRIOR TO MIDNIGHT OF THE 3RD BUSINESS DAY AFTER THE DATE OF THIS CONTRACT.
IF YOU WISH TO CANCEL THIS CONTRACT, YOU MAY DO SO WITHOUT ANY PENALTY OR OBLIGATION. TO CANCEL THIS CONTRACT MAIL BY CERTIFIED OR REGISTERED MAIL OR DELIVER A SIGNED AND DATED COPY OF THIS CONTRACT OR ANY OTHER WRITTEN NOTICE TO
of Health Spa) (Address of Health Spa)
NOT LATER THAN MIDNIGHT OF................
YOU MAY ALSO CANCEL THIS CONTRACT IF THIS SPA MOVES OR GOES OUT OF BUSINESS AND FAILS TO PROVIDE EQUAL FACILITIES WITHIN 15 MILES OF THE LOCATION DESIGNATED IN THIS CONTRACT. IF YOU CANCEL, THE HEALTH SPA MAY RETAIN OR COLLECT A PORTION OF THE CONTRACT PRICE EQUAL TO THE PROPORTIONATE VALUE OF THE SERVICES OR USE OF FACILITIES YOU HAVE ALREADY RECEIVED."
§ 4207 Duration of contract.
No health spa contract shall have a duration for a period longer than 36 months. However, the computation of the maximum duration permissible shall exclude any period of time (not to exceed 6 months) offered by a health spa as a bonus incentive at a price which, by comparison with comparable contracts offered by the same health spa, clearly demonstrates that the bonus incentive is not being paid for by the purchaser.
§ 4208 Renewals.
If the original health spa contract complies with the chapter, or was entered into prior to January 1, 1989, the exercise of options to renew health spa contracts at a prorated price less than the original contract price may be accomplished by a separate written agreement devised by the health spa without regard to the provisions of §§ 4205 and 4206 of this title; provided however, that all regulatory provisions of this chapter including, without limitation, refund and fee provisions shall continue to apply. Notwithstanding the foregoing, any member of a health spa may demand to execute a renewal contract in compliance with the provisions of this chapter.
§ 4209 Initiation fees limited.
No health spa shall charge any initiation fee in connection with a health spa contract of less than 12 months' duration. For all health spa contracts of 3 months or less duration, all rights of renewal which extend the membership beyond the first 3 months shall be offered and sold at a contract price per month for each renewal period not greater than the contract price per month for the initial membership period.
§ 4210 Provisions not exclusive.
The provisions of this chapter are not exclusive and do not relieve the parties or the contracts subject thereto from compliance with all other applicable provisions of law.
§ 4211 Fraud rendering contract void.
Any health spa contract entered into by the buyer upon any false or misleading information, representation, notice or advertisement of the health spa or the health spa's agents shall be void and unenforceable.
§ 4212 Noncomplying contract voidable.
Any health spa contract which does not comply with the applicable provisions of this chapter shall be voidable at the option of the buyer.
§ 4213 Waiver of provisions void and unenforceable.
Any waiver by the buyer of the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.
§ 4214 Notice of preservation of buyer's rights.
All health spa contracts and any promissory note executed by the buyer in connection therewith shall contain the following provision on the face thereof in at least 10-point, boldface type:
ANY HOLDER OF THIS CONTRACT OR NOTE IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
§ 4215 Prohibition against assignment of health spa contract cutting off buyer's right of action or defense against seller; conditions.
Whether or not the health spa has complied with the notice requirements of § 4206 of this title, any right of action or defense arising out of a health spa contract which the buyer has against the health spa, and which would be cut off by assignment, shall not be cut off by assignment of the contract to any third-party holder, whether or not the holder acquires the contract in good faith and for value.
§ 4216 Change in ownership of health spa.
For purposes of this chapter, a health spa shall be considered a new health spa and subject to the requirements of §§ 4203 and 4204 of this title at the time the health spa changes ownership.
§ 4217 Deceptive acts prohibited.
It is hereby declared to be an unfair and deceptive trade practice and unlawful for a health spa to:
(1) Misrepresent directly or indirectly in its advertising, promotional materials, or in any manner the size, location, facilities or equipment of its studio, or place of business or the number or qualifications of its personnel;
(2) Make any representation calculated to mislead or deceive buyers as to the health spa's affiliation with other health-related industries; or
(3) Misrepresent the location or locations at which its services will be offered.
§ 4218 Production of records.
Every health spa, upon the written request of the Director, shall make available to the Director its pre-opening bank account records and all membership contracts for inspection and copying, to enable the Director reasonably to determine compliance with this chapter.
§ 4219 Private right of action.
(a) Any buyer damaged by a violation of this chapter may bring an action for recovery of damages. If damages are awarded to the aggrieved party, such damages shall be triple the amount of the actual damages proved plus reasonable attorney fees.
(b) Nothing in this chapter shall be construed so as to nullify or impair any right or rights which a buyer may have at common law, by statute or otherwise.
§ 4220 Violations.
In addition to the remedies hereinbefore provided, the Attorney General may bring an action to restrain violations of this chapter in the Court of Chancery and for such other relief as may be appropriate. The provisions of this chapter are not exclusive and do not relieve the health spa or its assignees or the contracts subject to this chapter from compliance with all other applicable provisions of law.
§ 4221 Limitations.
Contracts executed prior to January 1, 1986, and whose original terms are still enforceable as of January 1, 1989, are excluded from all cancellation, refund and fee provisions of this chapter.
§ 4222 Enforcement.
A violation of this chapter shall be within the scope of the enforcement duties and powers of the Division of Consumer Protection, as described in Chapter 25 of Title 29.