Paid-in-Full, or PIF, contracts are memberships that are paid up front. Gyms do this by selling 3 month, 6 month, or 12 month membership contracts. The gym charges the new member the full price of the membership up front in order to receive a discount. For example:
1 Month = $200/mn
3 Months = $575 ($175/mn) when paid in full
6 Months – $900 ($150/mn) when paid in full
Gym owners love this because it is a large amount of cash all at once. The gym owner sells a membership for $900.00 in month one. Then, in month 3, the gym owner gets another $900.00. If the gym owner sells one of these memberships each month, then the owner can predict on at least $900.00 in revenue recurring each month.
However, the legal industry frowns highly on PIF contracts. Here’s why.
Your State Laws May Prohibit It
Almost every state has an area of its law dedicated to health clubs and membership contracts. These sections of the law often require automatic renewal contracts to be in writing with very specific language. If you are selling a membership that automatically takes payment from the member each month, you likely have to have a written contract. These same sections of the law often limit the length of a contract. For example, Pennsylvania prohibits the sale of a membership contract that lasts more than 3 months. Therefore, selling a 6 month or year long contract is illegal in PA. Violations of these laws can span anywhere from a civil lawsuit to a criminal felony.
Early Termination Problems
The other big issue we see with PIF contracts is early termination. Assume the member buys a year long contract, pays for it up front, and decides to leave 6 months in. That member is going to want his/her money back for the remaining 6 months. However, what about your no refunds policy? Are you going to make an exception? Or, are you going to put your foot down and refuse to refund? If you make an exception, and exception for one is an exception for all, so why have the no refund policy? Additionally, that’s a big chunk of change coming out of your bank account.
If you put your foot down and refuse the refund, you will likely get sued. When that happens, you are in trouble. Regardless of your membership contract, it is hard to win in court with a PIF contract. Additionally, refer to our first reason to avoid PIF contacts. Your state likely requires you to put refund exception language in your membership contracts. If you didn’t do this, your contract will be void and you can get in some serious, even criminal, trouble.
How to Avoid Legal Trouble
So, how do you avoid all of this potential legal trouble? Easy, NO PIF CONTRACTS. Sell month to month automatically renewing contracts that meet your state’s legal requirements. Set yourself up for success.