2006 New York Code - Bond, Letter Of Credit Or Certificate Of Deposit Required.

 
    § 622-a. Bond, letter of credit or certificate of deposit required. 1.
  Every  health  club,  except  as  provided  in  subdivision  ten of this
  section, before it enters into any contract for services for  use  by  a
  buyer  of  a  health club, shall file and at all times maintain with the
  secretary,  in  form,  amount  as  prescribed   herein   and   substance
  satisfactory to him:
    (a)  A  bond  with a corporate surety, from a company authorized to do
  business in this state; or
    (b) An irrevocable letter of credit or a certificate of deposit from a
  New York state or federally chartered bank, trust company, savings  bank
  or  savings  and  loan  association qualified to do business in New York
  state and insured by the federal deposit insurance corporation.
    2. The principal sum of the bond, letter of credit, or certificate  of
  deposit shall be;
    (a)  Fifty  thousand  dollars  if  the health club sells contracts for
  services for a term not greater than twelve months; or
    (b) Seventy-five thousand dollars if the health club  sells  contracts
  for  services  for  a term more than twelve months and up to twenty-four
  months; or
    (c) One hundred fifty  thousand  dollars  if  the  health  club  sells
  contracts for services for a term more than twenty-four months and up to
  thirty-six months.
    3.  For  health  clubs  with  three or more locations, or for multiple
  franchises of a common franchisor, the following amounts shall be  added
  to  the  sum  required  in subdivision two of this section for the bond,
  letter of credit, or certificate of deposit:
    (a) For three to four locations an additional fifty thousand dollars,
    (b) For five to six  locations  an  additional  one  hundred  thousand
  dollars,
    (c)  For  seven  to  nine  locations  an  additional one hundred fifty
  thousand dollars,
    (d) For ten or more  locations  an  additional  two  hundred  thousand
  dollars.
    4.  The  bond,  letter  of  credit  or certificate of deposit shall be
  payable in favor of the people of the state of New York for the  benefit
  of  any  buyer injured in the event that the seller goes out of business
  prior to the  expiration  of  the  buyer's  contract  for  services,  or
  otherwise  fails  to provide a refund to the buyer after cancellation of
  the buyer's contract for services as provided for in section six hundred
  twenty-four of this article.
    5. The aggregate liability of the surety upon the bond or the  banking
  organization  upon the letter of credit or certificate of deposit to all
  persons for all breaches of the conditions of the bond shall in no event
  exceed the amount of the  bond,  letter  of  credit  or  certificate  of
  deposit.
    6.  The  bond,  letter  of  credit or certificate of deposit filed and
  maintained pursuant to this section shall not be cancelled, revoked,  or
  terminated  except  after  notice  to,  and  with  the  consent  of, the
  secretary at least forty-five days  in  advance  of  such  cancellation,
  revocation, or termination.
    7.  Any  person  claiming  against  the  bond,  letter  of  credit  or
  certificate of deposit may bring and  maintain  an  action  against  the
  seller  and  the  surety or bank, trust company, savings bank or savings
  and loan association.
    8. For the purposes of this section, a health club shall be considered
  to be a new health club subject to the requirements of a bond, letter of
  credit or certificate of deposit as provided herein,  at  the  time  the
  health  club  changes ownership, or, in the case of corporate ownership,
  at the time thirty percent or more of the stock changes or  has  changed
  ownership.  A  change  in  ownership of a health club shall not release,
  cancel or terminate liability under this section under any bond,  letter
  of  credit  or  certificate of deposit filed for a health club as to any
  buyer who purchases a health club contract while such  bond,  letter  of
  credit  or  certificate  of  deposit is in effect unless the transferee,
  purchaser, successor, or assignee of such health club  obtains  a  bond,
  letter  of  credit  or certificate of deposit under this section for the
  benefit of such buyer.
    9. No contract for services shall be enforceable against the buyer  if
  the seller has failed to comply with any requirements of this section.
    10.  Health  clubs  shall  be  excluded from the requirement to file a
  bond, letter of credit, or certificate of deposit if  all  payments  for
  which  the  buyer  is  obligated  including,  but  not  limited  to down
  payments, initiation fees, enrollment fees, membership fees or any other
  direct payments to the health club  do  not  exceed  one  hundred  fifty
  dollars.  A  health  club shall also be excluded from the requirement to
  file a bond, letter of credit or certificate of deposit,  if  it  offers
  its  buyers  a monthly dues payment option for each dues payment plan it
  offers to customers, provided that: (a) both the annual and the  monthly
  membership options are disclosed to customers prior to entering into any
  membership contract; (b) that the monthly dues, including any initiation
  fee  or  other charge, do not exceed one hundred fifty dollars; (c) that
  the paid in full fee is not discounted by more than ten percent  of  the
  sum  of  the  initiation fee and the monthly dues payments; and (d) that
  the term of either option be no more than twelve  months  and  that  the
  membership   contract   not  contain  an  automatic  renewal  provision.
  Additionally, any health club which owns five  or  more  acres  of  real
  property  which  is  used directly for the purpose for which the club is
  formed, and any health club the use of which is  exclusively  restricted
  to  residents  of  a homeowners' association, cooperative or condominium
  and which is owned by and operated on the premises of  such  homeowners'
  association,  cooperative  or  condominium,  shall  be excluded from the
  requirement to file a bond, letter of credit or certificate of deposit.
    11. (a) Every health club shall post,  in  at  least  two  conspicuous
  areas  within the club, including, if applicable, an entrance area where
  buyers are required to register, a sign no smaller than nine  inches  by
  fourteen  inches  that  sets  forth  the  following  notice  clearly and
  conspicuously:
                  IMPORTANT NOTICE FOR HEALTH CLUB MEMBERS
    New York State law requires certain health clubs to  have  a  bond  or
  other  form  of  financial  security to protect members in the event the
  club closes.
  This club (insert whichever term is applicable)
        has posted the financial security required by law.
                                     or
        is exempt from this requirement.
  YOU MAY ASK A REPRESENTATIVE  OF  THE  CLUB  FOR  PROOF  OF  THE  CLUB's
  COMPLIANCE  WITH THIS LAW. YOU MAY ALSO OBTAIN THIS INFORMATION FROM THE
  NEW YORK STATE DEPARTMENT OF STATE, DIVISION OF LICENSING SERVICES,  162
  WASHINGTON AVENUE, ALBANY, N.Y. 12231.
    (b)  Health  clubs  that  operate  at two or more locations shall post
  notices in compliance with paragraph (a) of  this  subdivision  at  each
  such location.
    12. The notice required by subdivision eleven of this section shall be
  incorporated into any contract for services executed by a health club in
  at least ten point bold type.
    13.  Every  contract for services which offers the consumer the option
  to pay in installments shall contain the following notice, written in at
  least ten point bold type and placed directly above the  space  reserved
  for the signature of the buyer:
    THIS NOTICE PROVIDES IMPORTANT INFORMATION ABOUT YOUR PAYMENT OPTIONS
    You  may make payments on an installment basis or in a single payment.
  Paying the full amount may be less expensive, but may involve  financial
  risks to you. Read this notice carefully before making a decision.
    New  York  State  law  requires certain health clubs to post a bond or
  other financial security to  protect  members  in  the  event  the  club
  closes. This club is exempt from this requirement since it gives members
  the option of paying on an installment basis, therefore it need not post
  a bond or other form of financial security.
    In deciding whether to make your payments on an installment basis, you
  should  be  aware that if the club closes, although the club will remain
  legally liable for a refund, you may risk losing your money if the  club
  is unable to meet its financial obligations to members.