Ruth Brown joined LA Fitness Sports Club last spring expecting to regularly exercise in the pleasant surroundings of the spacious and well-equipped fitness center.

Instead, Brown has spent the past six months deadlocked in a dispute with the health club stemming from foul-ups with electronic withdrawals the club takes from her checking account to pay her monthly dues. The struggle left her so dismayed that she rarely uses the facility, which cost her a $125 initiation fee plus monthly dues.

A meticulous recordkeeper who set up a special checking account solely to pay the LA Fitness monthly dues, Brown was astonished to discover that LA Fitness made unauthorized withdrawals from the account on six different occasions beginning last July and continuing through November.

Brown complained, and initially some of her concerns were addressed. But the problems not only persisted, they got worse.

Brown contacted the state Banking Department, which said it had no jurisdiction and suggested she contact Senator John McCain. Brown also filed documentation with the state Attorney General's Office, which responded to her complaint with a form letter.

Her frustration with LA Fitness and the lack of regulatory action didn't subside until last week--just a few days after New Times contacted executives at LA Fitness headquarters in Newport Beach, California. The company has offered to clear up the electronic-withdrawal fiasco, but Brown remains leery.

Brown's experience with electronic withdrawals underscores the hazards of pay for any product or service by the increasingly popular method.

"This illustrates that electronic fund transfers limit a person's ability to resolve payment disputes with any kind of company, especially if that company doesn't practice responsive customer service," she says.

Businesses such as mortgage companies, insurance firms, utilities, newspapers and computer on-line services all encourage and sometimes require consumers to agree to electronic-fund transfers. The reason is simple. Manual billing methods cost $2 to $3 per billing cycle, including labor, printing and mailing expenses. Electronic withdrawals cost only 8 cents to 10 cents per transaction.

While electronic withdrawals are gaining wider acceptance because of the tremendous cost savings, there always lurks the danger that unauthorized withdrawals may occur through accident--or by design.

Giving a company permission to withdraw money from a checking account or credit card on a regular basis opens the door to fraud and abuse.

There have been several cases in Florida and Missouri where fitness centers, for example, used electronic withdrawals to overcharge customers or continue to tap accounts of customers who were no longer members.

In one case, a Missouri judge last October barred the owner of LA Fitness for Women from operating in the state because the company failed to put an expiration date on the electronic withdrawal agreement it provided to members. As a result, money was taken electronically from consumer bank accounts even after membership contracts had expired or been paid off.

LA Fitness chairman Chinyol Yi says there is no connection between his 31 LA Fitness Sports Clubs--four in Arizona and 27 in California--and the Missouri company of a similar name.

Unlike many Valley health clubs that provide several options for paying membership fees--including by check and cash--LA Fitness requires members to pay monthly dues by electronic withdrawals via either checking accounts or credit cards.

"It's both an advantage to the company and the members," says Yi. "Manual billing systems cost a lot more money and require a lot more manpower."

The savings are significant to an operation like LA Fitness, which has more than 150,000 members who each pay about $250 a year in fees--or $37.5 million annually. (The figures on membership and annual fees were disclosed in a news release put out by a marketing company that had purchased LA Fitness' membership list.)

Despite LA Fitness' heavy reliance on electronic withdrawals, the company's contract and electronic withdrawal authorization form provided to members has several problems, according to Paul Finch, chief executive officer of the Arizona Automated Clearing House Association.

The clearinghouse handles electronic withdrawals as well as check processing for Arizona financial institutions. The association is also affiliated with the National Automated Clearing House Association, which sets up rules financial institutions must follow.

Finch says the LA Fitness electronic withdrawal form "does not comply with the intent of the rules" of the national association. The chief problem, Finch says, is that the form does not clearly state dates and amounts of money to be withdrawn.

Yi contests Finch's assessment, saying withdrawal amounts appear on the contract, which is attached to the electronic withdrawal authorization form. He also says the authorization form indicates the date, but acknowledges that the wording could be clearer.

"We are doing it properly," Yi insists.
Finch outlined four key items consumers should check when signing electronic withdrawal authorizations:

The amount of money to be withdrawn must be the same for each transfer, and should clearly be stated on the authorization form. The dates of the transactions also must be disclosed.

If a company intends to alter the amount of a withdrawal, it must give the customer ten days' advance notice.

A provision for variable debit amounts may be added to the agreement, if the range of the dollar value is included in the agreement. This option is often used by utilities, whose customers' bills vary.

If the date of the transaction is changed from the original agreement, notice must be sent to the consumer not less than seven days prior to the transaction.

Brown's experience with LA Fitness shows the company failed to meet any of the provisions outlined by Finch.

Brown's banking records show that on four occasions, LA Fitness attempted to withdraw funds prior to the agreed withdrawal date in her one-year contract. The unauthorized withdrawals triggered $60 in insufficient-fund charges against Brown's Bank of America account. After contacting LA Fitness, the company reimbursed Brown $30 for the charges and waived membership dues for one month.

But problems with the electronic withdrawals persisted. On November 1, LA Fitness successfully withdrew $55 from Brown's account, even though the monthly dues were only $20, Brown says. There was no notification from LA Fitness that it was about to withdraw more money than called for in the contract. And there is no provision in the LA Fitness authorization for variable debits.

On the same date, LA Fitness tried to withdraw another $75 for a second, $25-a-month membership Brown was paying for a friend. There was not enough money after the $55 withdrawal, triggering yet another insufficient-fund charge. Once again, there was no notice that an increased withdrawal was about to be made.

At this point, Brown says she lost all faith in LA Fitness' ability to withdraw agreed-to amounts on agreed-to dates.

Brown called Bank of America to dispute LA Fitness' $55 withdrawal from her account and ordered the bank to make no more electronic transfers to LA Fitness. She then deposited enough money in the account to pay the November dues, plus $15 for the insufficient-fund charge, and mailed two checks totaling $45 to LA Fitness by certified mail to cover her and her friend's membership dues.

LA Fitness responded with a November 21 letter, telling Brown that the company would not accept checks as payment for membership dues. Nevertheless, Brown's bank records indicate that LA Fitness cashed the checks.

Meanwhile, Bank of America investigated Brown's complaint and found in her favor. Bank of America credited Brown's account the $55 withdrawn by LA Fitness and charged LA Fitness' bank for the money.

Brown paid her December dues by check, sent by certified mail, and once again LA Fitness cashed the check but continued to inform her verbally and in writing that this arrangement was not acceptable.

LA Fitness stepped up the pressure in a December 5 letter to Brown, claiming she also owed the club $65, "which includes unpaid monthly fees and any associated service charge(s)." The company's letter then threatened to turn the alleged debt over to a collection company.

Brown responded January 2, informing the club that there was no outstanding monthly fee and that referring the bad debt to a collection agency "will constitute false representation of credit data."

During this time, Brown says she rarely used the club because she was so aggravated with the financial mess. But on January 3, she went to the Tempe facility and, before allowing her to enter, the receptionist gave Brown a form to sign that would allow LA Fitness to resume electronic withdrawals from her checking account.

Brown didn't sign the form.
The financial stand-off dragged on until January 5, when Yi told New Times he would resolve Brown's complaints. The company contacted Brown later that day and promised to rescind collection efforts and waive monthly dues for Brown's two memberships in February and March as compensation for her problems.

The company also agreed to do something it said it would never do. LA Fitness will allow Brown to pay dues by check, as long as it is done 21 days prior to the due date.

Yi says it is his company's policy to satisfy consumer complaints and that he has never before had a situation similar to Brown's.

"I just want you to understand I'm very sincere about solving the problem," Yi says. "We don't want to sit here and create any bad will with any members at all."

Brown is relieved but still apprehensive.
"I'm happy about this," she says. "I hope other people are not having problems with it. But I'm very skeptical, given how long it has taken to resolve this.

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John Dougherty
Contact: John Dougherty