Can 7-Day Grace Period Regulate the Fitness Business

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Shanghai began tackling the unscrupulous sales of gym memberships by offering consumers a seven-day grace period this month to address the difficulties they face in getting refunds for impulsive purchases. The Shanghai Consumer Council said the goal is to regulate the business practices of fitness service operators. Earlier, ICS spoke to Professor Chen Guodong, an expert in Finance from NYU Shanghai, and learned more about how the policy protects consumers.

 

First of all, actually, the Seven-Day Refundable Period Policy has been there for a very long time, especially for e-commerce platforms. So this is definitely not new, but it is for a gym membership. So what are the differences?

 

Chen Guodong:

First of all, I think it's a big improvement for this industry in particular. But secondly, I think, different from the grace period from e-commerce, this gym membership actually has a special feature, because the seven-day grace period only applies if you don't open your card to give the first try. But as long as you use it once, then this grace period will be ineffective. So this is different from, for example, if you buy shoes or clothes, you can have a try without tak(ing) off the tag. If it doesn't fit, you can return it without giving any reason. So that's very convenient. But for gym memberships, it's totally a different story.
 

Some of the problems (are) caused by prepaid policies, but this is not just for gym memberships. This actually applies to many industries. So cross-industry, what are the current challenges for prepaid management?

 

Chen Guodong:

For example, extracurricular activities for early childhood education. We know in the past one or two years, there also have been a lot of similar problems in that industry. From there, actually, the government has some regulations by restricting the prepaid fees——like tuition——to be just within three months, which actually is a big improvement. Because even if you paid money to a bad-quality institute, you can still cut down your losses to a minimum within three months. But for gym memberships, now, I think usually they sell you a very long membership package——at least a year.

 

So how would consumers protect their own rights?

 

Chen Guodong:

We usually make prices based on our expectations. Let's say, for example, if on the market, there are only two types of products, good type and bad type, with equal chance, then our offering price is probably based on an average of the good quality and bad quality products. But if you make this offer, we know typically what you get will be the bad product only, because to get the good products, you need to pay a higher price. For consumers, first of all, for us, we need to do some research on our own. For example, we have some rating platforms. We can check their reputation, and to find the better-qualified gyms to join. And secondly, you should be very careful about the items in the contract, especially about refund policies. Sometimes, if possible, maybe you should add more flexible items to protect your own rights into the contract, like supplement terms.

 

Normally, the contract is provided by the institutes and usually it's very long and the word goes this small, but still, we remind our consumers to actually read it. But actually, we had many disputes occur after especially a chain business (that) suddenly went bankrupt. And they just had trouble with operations, so in that sense, how can we further protect ourselves?

 

Chen Guodong:

We may need more regulations about the business, because it's still a pretty young business in China, even though it's getting more and more popular. Maybe one possible way is, if they have this Gym Industry Association, maybe they can set a unified standard, which can be applied to the business to make it healthier and more sustainable. For example, like the early education industry, they follow the rule by setting this three-month maximum for the tuition, the gym businesses can borrow or at least try to adopt similar ideas. Other than that, I think if they can develop further, the next step could be a more realistic grace period, because so far, the grace period only applies to impulsive buying without trying. Maybe next time, it could be—giving the consumers a chance to try. They have maybe a certain period of one-week or two-week period and give a try to see whether they really like the institute or not. So that actually makes this protection on the consumer side to be more comprehensive.