FTC Drops Attempt to Regulate Spa Industry
The Federal Trade Commission voted unanimously Wednesday to drop a controversial 10-year effort to require the nation’s thousands of health spas to permit customers to cancel their memberships at any time and provide them with substantial refunds.
But, while agreeing to end the rule, acting FTC Chairman Terry Calvani served notice that the commission “will continue to monitor the health spa industry and challenge illegal practices.”
As the industry rapidly expanded in the mid-1970s, paralleling Americans’ growing interest in health and fitness, consumers complained of spas’ deceptive advertisements, high-pressure sales tactics, misrepresentations in sales presentations, contracts restricting membership cancellations and unexpected closings.
In response to the allegations of abuse, the FTC first drafted a proposed rule in 1975. But on Wednesday commissioners concluded that the number of complaints--estimated at 3,000 in four years--did not justify industrywide regulation.
Case-by-Case Approach
“The proposed rule is not supported by the present evidence,” Calvani said. He contended that the FTC could most effectively deal with problems in the industry “through case-by-case adjudication rather than through a new attempt at rule making.”
A key provision of the proposed rule would have required spas to allow consumers to cancel their memberships at any time and to provide prorated refunds, regardless of any wrongdoing on the part of the spa.
However, the FTC staff concluded that this requirement might cause many spas to lose a substantial amount of money and could force some out of business. In addition, higher operating costs could result in higher fees for members, the staff said.
Other provisions of the proposed rule would have required spas to offer a “cooling-off” period for new members in which they could reconsider and cancel their contracts; limited new spas to receiving no more than 5% of a membership fee before opening, and limited spa memberships to two years.
Source of Complaints
A total of 24 states, including California, already have enacted regulations that provide “cooling-off” periods for new spa members, noted Amanda Pedersen, acting director of the FTC’s Bureau of Consumer Protection. She acknowledged that spas have been a continuing source of consumer complaints and that some individual spa owners have been guilty of unfair or deceptive actions.
“There is no question that consumer injury can be substantial when spas fraudulently take consumers’ money and never open, or when fraudulent operators close the spa and abscond with the money,” Pedersen said. “Such practices are clearly illegal and would be subject to commission action.”
Pedersen also said that spas often close for reasons that have nothing to do with the illegal practices that would violate FTC regulations, including management problems or poor economic conditions.
“Individual (legal) actions are the most effective use of commission resources in this area,” she said. “We do not need additional federal regulations to take action against fraudulent operators.”
Joining Calvani in the 3-0 vote to accept the staff recommendation were Commissioners Patricia P. Bailey and Mary L. Azcuenaga.
