Gyms and Academies' Long-Term Contract 'No Refund' Clauses May Be Void Depending on the Penalty Terms

A growing number of consumers are signing up for long-term memberships at gyms, Pilates studios, and language academies for self-improvement. While long-term registration can bring discount benefits, there are also cases in which consumers face larger-than-expected penalties or refund refusals when they try to terminate a contract early for personal reasons.

Even if a contract states phrases such as "no refund upon early termination" or "full deduction of penalty," not all such clauses are legally valid.

Because long-term use contracts often set discount conditions and termination standards together, it is necessary to check the refund method and penalty calculation standards before signing.

Daeryun LLC Attorney Kang Dae-hee explained, "If a contract or terms of service prepared in advance by a business operator include a penalty clause that imposes excessive damages on the consumer, it may be judged void under the Act on the Regulation of Terms and Conditions."

The Terms and Conditions Regulation Act stipulates that terms that are unilaterally unfavorable to consumers or that lack fairness are void. A clause may not be recognized as effective if the penalty significantly exceeds ordinary damages, is imposed uniformly regardless of the reason for termination, or has a structure that disadvantages only the consumer without any provision on the business operator's liability for its own fault.

A penalty and a predetermined amount of damages also differ in legal nature. A predetermined amount of damages is a compensation amount set in advance regardless of whether actual damage occurs, and if excessive, the court may reduce it. On the other hand, a penalty for breach has the character of a sanction against breach of contract, so it can work more unfavorably for the consumer, and a penalty clause included in the terms can also be void if it imposes an excessive burden on the consumer.

If a contract fails to be performed properly due to the business operator's fault, in principle the consumer has no obligation to bear the penalty. Rather, the consumer can demand a refund of amounts already paid along with termination of the contract, or claim damages. Even if the terms include a statement that "no refund is possible under any circumstances," if the business operator's fault is recognized, that clause may be judged void.

There are also cases in which, when terminating a long-term discount contract early, the usage fee is recalculated based on the regular price rather than the actual amount paid, or the cost of gifts or additional services that were advertised as free is excessively deducted. Clauses that effectively eliminate the refund in this way may also be recognized as terms unfairly unfavorable to the consumer.

Attorney Kang advised, "If a contract dispute arises, it is important to secure the contract and payment records without fail and to clearly convey the intention to terminate the contract through means such as certified mail," adding, "If necessary, it is necessary to actively exercise one's rights through the Korea Consumer Agency's damage relief procedures or the help of a legal expert."

[Read Full Article]
Gyms and Academies' Long-Term Contract 'No Refund' Clauses May Be Void Depending on the Penalty Terms (Go to Link)