Gym giant CityFitness was ordered to pay a $1.12 million fine after admitting to misleading customers about membership costs. The company advertised weekly rates of $6.99 but added a compulsory 3% “transaction fee” that the Commerce Commission found was actually designed to increase company profits rather than cover costs.
Why did CityFitness face a $1.12 million fine?
The fine follows an admission by CityFitness that they misled the public regarding the true cost of their gym memberships. According to the Commerce Commission, the company’s largest gym business in the country advertised its cheapest memberships at a rate of $6.99 per week. However, they added a 3% charge labeled as a “transaction fee.”
The issue wasn’t just the extra cost, but the nature of the fee itself. The Commission found that this fee was compulsory for all members. Because it wasn’t optional, the advertised $6.99 price didn’t actually exist in practice. This practice effectively attracted new members using a price point that was fundamentally inaccurate.
What did the Commerce Commission find regarding these fees?
The Commerce Commission’s investigation revealed that the “transaction fee” served a purpose other than covering administrative costs. Deputy chair Anne Callinan stated that the fee was misleading and appeared designed to lift the company’s profit margins rather than offset expenses.
Callinan issued a blunt warning to the wider business community following the ruling, stating that the message is simple: “Be honest with your customers.” The company ultimately admitted to eight charges under the Fair Trading Act as a result of these practices.
How did the court rule on the company’s conduct?
Auckland District Court Judge David Clark noted that the decision to implement these fees was made at the highest level of the CityFitness organization. He didn’t mince words regarding the impact on consumer rights.
“CityFitness disregarded the rights and interests of potential members in preference to looking after its own commercial interests,” Judge Clark said. He noted that “a falsehood was created” to achieve this commercial goal.
The judge did acknowledge the economic pressures businesses face. He stated that while there is nothing wrong with a business protecting itself against high inflationary costs, they must do so in a way that is “responsible, coherent with market practice, and consistent with [Fair Trading Act] principles.”
How many people were affected by the misleading fees?
The financial impact on consumers was significant. The misleading fee structure was paid by approximately 125,000 people. For the company, these small, compulsory percentages added up to a substantial sum, generating an additional $1.6 million in revenue.
This case serves as a major precedent for how “drip pricing”—the practice of adding mandatory fees at the end of a transaction—is viewed by regulators. It highlights the massive scale of potential impact when a large-scale membership model uses non-transparent pricing.
Frequently Asked Questions
- How much was the fine for CityFitness?
CityFitness was ordered to pay a $1.12 million fine. - What was the misleading fee?
The company added a compulsory 3% “transaction fee” to advertised $6.99 weekly memberships. - How many customers were impacted?
Approximately 125,000 people paid the additional fees. - What law was violated?
The company admitted to eight charges under the Fair Trading Act.
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