California Refund Law for prepaid services

[johnny5alive11]

Hello There-

I own and operate a small business where we provide exercise services for our clients. A client from 2017, who worked with a staff member who is no longer with us, emailed me today asking a refund for his purchase of the package of 16 sessions since he only used the first session. Our company policy is that we offer refunds for the remaining sessions within the first year but honor the usage of those sessions beyond the year. What makes this complicated my previous staff member did not acquire signature that outlines this policy. We of course reached out to him to schedule his future appointments but he never responded to any of our phone calls and emails.

So I eventually called him back, said the exercises were not working (which he never expressed to us) and he claims he is entitled to a refund due to California laws for prepaid services. I cannot find any such law or legislature to show that he is correct. Does anyone here have any knowledge regarding prepaid services law in California and refund policies? Thank you for your help in advance.

 

[zddoodah]

Company policies aren't relevant unless they're included or incorporated in a contract. Did your company have a written contract with the client? If so, what did it say about this?

Failing relevant language in a contract, the general law is that sales are final and non-refundable (although there are a few exceptions, and it's possible that your situation might fall within the purview of California's Health Studio Services Contract Law).

 

[quincy]

Here is the law:
https://law.justia.com/codes/california/2018/code-civ/division-3/part-4/title-2.4/

See 1812.50 and 1812.54.

 

[Zigner]

This type of arrangement may be seen/interpreted as falling under the California Gift Card/Gift Certificate law. Not saying for sure that it does, but it's something to also consider.

 

[johnny5alive11]

This type of arrangement may be seen/interpreted as falling under the California Gift Card/Gift Certificate law. Not saying for sure that it does, but it's something to also consider.

Yes I did see that but what we sell are service based sessions and I'm not sure how they would qualify as a gift certificate.

 

[johnny5alive11]

Company policies aren't relevant unless they're included or incorporated in a contract. Did your company have a written contract with the client? If so, what did it say about this?

Failing relevant language in a contract, the general law is that sales are final and non-refundable (although there are a few exceptions, and it's possible that your situation might fall within the purview of California's Health Studio Services Contract Law).

Unfortunately the staff member did not acquire a signed copy of the contract which states the 1 year policy on refunds. If I'm reading the law correctly then they are not entitled to a refund then?

 

[quincy]

Unfortunately the staff member did not acquire a signed copy of the contract which states the 1 year policy on refunds. If I'm reading the law correctly then they are not entitled to a refund then?

I believe they waited to long to seek a refund. As a good will gesture, however, your business might want to refund any balance anyway.

 

[Taxing Matters]

What makes this complicated my previous staff member did not acquire signature that outlines this policy.

You seem to have a potential problem here. California Civil Code § 1812.82 requires that health club contracts be in writing. Your failure to get the customer's signature on the contract is a problem as that would mean you likely don't have a written contract. And that's a problem because if you violate any of the rules in California's law for health clubs the contract is void. California Civil Code § 1812.91. If the contract is void then you may need to refund everything the customer paid you. In that case, refunding what the customer is asking may be a good idea.

While I don't see any law on prepaid services that expressly says what the customer said, the details of how you structured the prepaid services does matter. If they look a lot like prepaid gift certificates or otherwise are set where the amount paid is tied to a specific amount of sessions various federal and California prepaid card/gift laws may apply.

I suggest you see a California business attorney about this particular request and more generally how you structure your prepaid contracts, preferably an attorney familiar with the provisions of California Civil Code §§ 1812.80-1812.98. You can read a summary of these laws that apply to fitness/health club businesses from the California Department of Consumer Affairs (DCA).

 

[quincy]

A refund, whether one is required or not, can be a way to easily resolve the problem and leave the former customer happy. I recommend this approach - followed by a consultation with a lawyer in your area to work on service contracts that prevent problems in the future.

 

[johnny5alive11]

You seem to have a potential problem here. California Civil Code § 1812.82 requires that health club contracts be in writing. Your failure to get the customer's signature on the contract is a problem as that would mean you likely don't have a written contract. And that's a problem because if you violate any of the rules in California's law for health clubs the contract is void. California Civil Code § 1812.91. If the contract is void then you may need to refund everything the customer paid you. In that case, refunding what the customer is asking may be a good idea.

While I don't see any law on prepaid services that expressly says what the customer said, the details of how you structured the prepaid services does matter. If they look a lot like prepaid gift certificates or otherwise are set where the amount paid is tied to a specific amount of sessions various federal and California prepaid card/gift laws may apply.

I suggest you see a California business attorney about this particular request and more generally how you structure your prepaid contracts, preferably an attorney familiar with the provisions of California Civil Code §§ 1812.80-1812.98. You can read a summary of these laws that apply to fitness/health club businesses from the California Department of Consumer Affairs (DCA).

Thanks for this reply as it is very informative. The structure of the prepaid services are a set dollar amount to a specific amount of session, does that mean the law interprets these as a gift certificate vs normal transaction?

 

[quincy]

Thanks for this reply as it is very informative. The structure of the prepaid services are a set dollar amount to a specific amount of session, does that mean the law interprets these as a gift certificate vs normal transaction?

If you do not want to provide a refund, you should sit down with an attorney in California to see which law best applies to the services you offer. This is something you should do anyway so that you do not inadvertently violate the law in the future.

 

[zddoodah]

Here is the law:
https://law.justia.com/codes/california/2018/code-civ/division-3/part-4/title-2.4/

See 1812.50 and 1812.54.

This isn't the correct body of law. Civil Code 1812.50, et seq. covers contracts for dance studio lessons and other services, and nothing the OP posted suggests that's what he/she is offering. The Health Studio Services Contract Law starts with Civil Code section 1812.80, and the threshold issue is whether the OP's services fit the definition in section 1812.81. Sounds like it does, so I agree with Taxing Matters (who linked both the correct body of law and the same article that I previously linked).

 

[quincy]

You are probably right.

My advice, however, stands.