ComCom action sees CityFitness fined $1.12m for a misleading ‘transaction fee’

The Commission filed charges against CityFitness in September last year following an investigation into the popular gym, which is the biggest gym business in New Zealand, with an estimated 40% market share.

Commerce Commission Deputy Chair Anne Callinan says that at the time of the conduct the company was advertising one of the cheapest memberships available at $6.99 per week.

“CityFitness continued to advertise this price even after introducing a 3% ‘transaction fee’. This fee was compulsory for all new members, meaning the gym was attracting customers by publicising a price that did not actually exist,” Ms Callinan says.

“The 3% fee was charged to over 125,000 members and created approximately $1.6 million of additional revenue for CityFitness.”
CityFitness also inaccurately labelled the 3% fee a ‘transaction fee’.

“This created a misleading impression that the fee was a surcharge related to a customer’s choice of payment. Our investigation found its actual purpose was to lift overall business revenue” Ms Callinan says.

In sentencing CityFitness, Judge David J Clark said decisions made by the company’s senior executives to increase the membership fees to cover the increasing operating costs “had the effect of misleading potential members in terms of what they would be paying as a membership fee”.

“City Fitness needed an increase to cover the increasing operating costs but rather than fully disclosing this to its members, it chose to achieve this through a mechanism which was patently false in terms of its true purposes … the decision to use the labels of ‘transaction fee’ and ‘Payment Authority Fee’ were approved at the highest levels where the concerns were more focused on marketing and competition outcomes, rather than protecting consumers by making full and frank disclosures as to why membership fees needed to be increased.

"There was an intent by CityFitness to mislead or deceive potential members by not disclosing the true nature of the transaction fee and disguising this fact,” Judge Clark said.

“CityFitness disregarded the rights and interests of potential members in preference to looking after its own commercial interests. A falsehood was created to do this.

“Although ... there is nothing wrong with a business protecting itself against high inflationary costs, it must do so in a manner which is responsible, coherent with market practice, and consistent with FTA principles.

“These actions suggest to me a company who is looking at its commercial position rather than its obligations under the FTA,” Judge Clark said.

Ms Callinan says her message to businesses is simple: “Be honest with your customers.”

“If you are applying a surcharge, you must be upfront and honest about what the surcharge is for. Likewise, advertised prices must not mislead customers about the full and final cost of a product or service.

“We will continue to uphold Kiwis’ rights and pursue businesses that mislead customers and try to gain an unfair advantage over their competitors by publicising prices that are not what they seem”.