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Three year consumer lock-in is illegal, says OFT

Gym membership contracts that lasted for three years and could not be cancelled breached consumer protection laws, according to consumer protection regulator the Office of Fair Trading (OFT).15 Mar 2010

The OFT is taking Ashbourne Management Services to court over its practice of signing up gym members to contracts that have no get-out clause. Members attempting to leave their gyms are handed bills for the remainder of the three year term and their details passed on to debt collectors if they do not pay, the OFT said.

Ashbourne does not run gyms itself, but draws up the membership agreements for gyms and enforces them. The OFT has received a number of complaints about its practices.

"The OFT believes they should allow consumers to cancel their membership on reasonable terms," said an OFT statement. "Making consumers always pay the full amount for the minimum period is, in the OFT's view, unfair under the Unfair Terms in Consumer Contracts Regulations 1999."

"The OFT also objects to Ashbourne's practice of reporting consumers to credit reference agencies, and considers its conduct to be both misleading and aggressive under the Consumer Protection from Unfair Trading Regulations 2008," it said.

The OFT said that Ashbourne had registered 17,000 defaults with credit reference agencies. The Ashbourne agreements tie consumers into the contract for a minimum period of three years with no right of cancellation.

The OFT said that it believes that Ashbourne's behaviour is also in breach of the Consumer Credit Act. It said that because the contracts bind a consumer to pay a fixed sum of money over a set period of time, the Act should apply.

"As such the agreements should set out clearly and upfront the total amount the consumer is liable to pay, and comply in all other respects with the rules under the Act. In the absence of this, the OFT considers the agreements cannot be enforced without a court order," it said.

"It is important that consumers are able to understand the nature and extent of their liabilities before entering into contracts," said OFT legal director Jason Freeman. "The Consumer Credit Act sets out rules to ensure this, and we expect traders offering credit to comply with these."

'Likewise, traders should not use unfair contracts or misleading or aggressive practices in order to put pressure on consumers to pay money that the trader may not otherwise be entitled to," said Freeman. "We have concerns about Ashbourne's practices, but as the company disputes our interpretation of the law we have asked the High Court to rule on this."

The Unfair Terms in Consumer Contracts Regulations are designed to protect consumers because sales contracts are not negotiated, consumers usually only have a choice to accept or reject them, not to negotiate specific terms.

The Consumer Protection from Unfair Trading Regulations govern the way that businesses treat consumers and contain a general prohibition against companies treating consumers unfairly.