Health Club Bonds
Currently approximately 40 million people in the United States belong to over 26,000 different health clubs. Because more and more people are trying to avoid the "bulge" and reduce obesity, health clubs have become one of the most popular forms of weight loss and fitness.
With the continual expansion of popular health clubs such as LA Fitness or 24 Hour Fitness, people are finding it more convenient than ever to buy health club memberships. But what happens to those who buy health club memberships from health clubs that might shut down in the future? Is their pre-paid membership protected from scurrilous or poorly managed health clubs?
Protection
Many states require health clubs to get bonded to help protect consumers. A health club will purchase and post a bond with the attorney general in the state. The attorney general guarantees the refund of membership fees in the circumstance that the health club goes out of business. As with any surety bond, a health club bond is a protection against contract breach on the part of the business.
Why do health clubs need surety bonds?
Health club bonds became a necessity when a large number of clubs failed as a result of inadequate financial management, or fraud. Some health clubs opened for memberships, collected a large sum of pre-paid membership fees and then closed and kept the fees they collected. This left thousands of paying clients without memberships. Sometimes health clubs would fail financially simply due to bad management and were then unable to refund pre-paid fees to members.
To counteract this trend many states created legislation requiring health clubs to purchase a surety bond with a licensed insurer.
Who Must Be Bonded?
Health club bonds are not limited to health clubs that offer fitness training. Other types of pre-paid membership health organizations may also be required to post a bond with their state attorney general, including:
- general fitness clubs
- racquetball/tennis clubs
- gyms
- weight loss centers
- self-defense schools
- personal athletic trainers who have their own facility
- bodybuilding clubs
How much is a bond?
Bond amounts differ from state to state depending on regulations. Typical bond amounts are tiered based on the different types and lengths of memberships. For instance, in New York a health club must post a $50,000 bond if it offers 12 month memberships, $100,000 for 12-24 month memberships and $150,000 for membership contracts that last up to 36 months. Additionally, some states require health clubs that have more than one location to post supplementary bond amounts. To obtain the bond an annual premium, which is usually 1-4% of the bond amount, must be paid.
Who Insures a Health Club Bond?
A health club bond must be purchased through a qualified surety bond insurance agency.
In states that require health club bonds, clubs must post, or prove, they have purchased a bond to the state attorney general. They must also prominently display the bond to all customers who use the facility.
Who Benefits?
The beneficiaries of a health club bond are the unsuspecting or innocent health club members who have paid large sums of money to become a user of a the facility. If a health club is bonded and goes out of business, then the health club bond refunds the members' remaining pre-paid fee amounts.
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