Nowadays walking past a Hong Kong Fitness Centre or Beauty Salon puts you at risk of encountering a salesperson, aggressively selling memberships or beauty treatments.

However, did you ever wonder whether such sales techniques are actually a breach of the law and does not current Hong Kong law already provide adequate protection for consumers interested in such products/services?

Separately, is there still a need for a statutory cooling-off period to protect consumers?

Hong Kong Current Law – Trade Descriptions (Amendment) Ordinance

Current consumer protection is provided in part through the Trade Descriptions (Unfair Trade Practices)(“Amendment Ordinance”) which amended the Trade Descriptions Ordinance (Cap 362) and which now expressly prohibits six specific “trade practices”.

Those six trade practices are now express offences under the Amendment Ordinance, being (1) false trade descriptions of services, (2) misleading omissions, (3) aggressive commercial practices (ie the aggressive sales techniques referred to above), (4) bait advertising, (5) bait-and-switch, and (6) wrongly accepting payment.

Enforcement of the Amendment Ordinance is through the Hong Kong Consumer Council, with whom a consumer may lodge a complaint. So it is the Consumer Council that decides whether or not to take legal action against an offending business.

If a business is found guilty of engaging in any one of these six trade practices, it may be subject to criminal sanctions; on conviction on indictment, with fines of $500,000 and imprisonment of 5 years. On a summary conviction, fines of $100,000 and imprisonment of 2 years may be imposed.

In addition to the consumer protection through the Hong Kong Consumer Council, consumers could choose to institute a private action based on contract law or tort, although costs may be prohibitive.

Protection of Consumers under the Amendment Ordinance

The Consumer Council does provide consumers with a practical channel to take action against Fitness Centres and Beauty Salons, as shown below:

In April 2016, California Fitness was publicly named and criticized by the Consumer Council for aggressive sales practices deployed in the sale of gym memberships and services to consumers, such practices being deemed intimidating, pressuring and misleading consumers into signing for such memberships, while failing to explain key contractual terms during the sale process, often involving long-term contracts valued at tens of thousands of dollars.

California Fitness itself continued to receive an increasingly large number of complaints from consumers (227 in 2013, 296 in 2015), representing over half the number of total complaints against Fitness Centres in 2015 (577) before it went out of business last year.

In another instance, staff of a Beauty Salon were convicted for engaging in aggressive commercial practices, after having continuously pressured a consumer for one and a half hours, urging that customer, on the basis that there were lumps on the consumer’s chest, to purchase a body treatment package of HK$140,000. The customer yielded despite initially expressing reluctance.

In a third case, a Beauty Salon director and sales manager were given a suspended sentence for misleading customers into believing that the customers would be obtaining a diploma from an Australian vocational institution, although that vocational institution no longer had the right to issue the qualification. The director and sales manager were found liable for engaging in a commercial practice that was a misleading omission.

The particular problem with Fitness Centres and Beauty Salons

Despite the implementation of the Amendment Ordinance, there is still evidence that some Fitness Centres and Beauty Salons breach the Amendment Ordinance by engaging in one or more of the six above prohibited trade practices.

Statistics recently published by the Consumer Council show that the number of consumer complaints against Fitness Centres and Beauty Salons for engaging in these six trade practices continue to rise year on year.

Additionally, statistics from the Hong Kong Customs and Excise Department, show that the number of complaints against Fitness Centres between January and March 2015 was substantially less than in the period between January and March 2016. Similarly, the number of complaints against Beauty Salons during the period between January and March 2015 was far less than in the period between January and March 2016.

Does Current Legislation Adequately Protect Consumers dealing with Fitness Centres and or Beauty Salons?

Hong Kong’s current consumer protection legislation is consistent with the United Nations Guidelines for Consumer Protection, as it provides consumers with a channel, the Consumer Council, to take action against any businesses who are in breach of the provisions of the Amendment Ordinance.

However, even the Consumer Council agrees that aggressive sales practices, and other potentially “unfair trade practices” still remain widespread, especially in relation to Fitness Centres and Beauty Salons.

Lawmakers have long pushed for a statutory cooling-off period, allowing consumers who have been allegedly ‘forced’ into signing contracts to cancel such contracts and get their money back. Cooling-off periods were discussed by LegCo as long ago as 2007, when proposals were made to align Hong Kong’s statutory consumer protection with that of the European Union and the United States.

Statutory cooling-off periods were further debated by LegCo in 2011, and the Consumer Council made suggestions to the Fitness Centre industry last year about self-regulation.

There does remain strong support from lawmakers for statutory cooling-off periods to be implemented for the protection of consumers. In May last year, a motion was passed by the LegCo Panel of Economic Development to “urge the Government to introduce legislation on the imposition of mandatory cooling-off periods, and accord priority to implementing a statutory cooling-off period for pre-paid services involving a lot of complaints and large amount of payment, such as those provided by Fitness Centres and Beauty Salons.”

However, despite the above motion, the Government has failed to take any definitive action, stating that more deliberation and research is required before any action is taken.

Is it not now time for some action to be taken, rather than more deliberations? Should there not now be the implementation of a statutory cooling-off period?

This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.

INTRODUCTION

In recent years, many complaints have been lodged with the Hong Kong Police about “financial intermediaries” luring potential borrowers into applying for low interest loans, and then defrauding them of the money borrowed. In some instances, people have been defrauded out of millions of Hong Kong Dollars. So in an attempt to regulate these unscrupulous “financial intermediaries”, the Hong Kong Government has now introduced a number of conditions which each licensed money lender must observe.

These conditions (“Conditions”) took effect on 1st December 2016, and were introduced to:  

1. Increase public awareness of unscrupulous financial intermediaries; and
2. Prevent those “financial intermediaries” (each a “Third Party”) from charging borrowers with separate fees; and
3. Improve and enhance the transparency between the licensed money lender, any Third Party and every intended borrower.

Applicability

Each person or company involved in the “procuring, negotiation, obtaining, application, guaranteeing or securing the repayment of” a loan, but who is not a solicitor instructed by the intended borrower for the sole purpose of providing legal services, nor the lender, nor the borrower of the loan, is considered to be a Third Party for the purposes of the Conditions.

The Conditions can be considered within the following four practical areas.

1. Pre contract Obligations

Every licensed money lender now has an obligation, before entering into any loan agreement with an intended borrower, to:

1. Ensure that there is no Third Party involved, OR
2. That the Third Party has already been successfully registered with the Registrar of Money Lenders;
3. Ask the intended borrower whether he has entered into or signed any agreement with a Third Party;
4. State in writing the intended borrower’s reply to (2) above;
5. If the intended borrower’s reply to (2) is “Yes ”, then the licensed money lender must
   1. obtain the name and address of the Third Party
   2. state in the intended loan agreement the name and address of the Third Party, whether the licensed money lender is in any way related to the Third Party, and if so the nature of such relationship;
   3. request the intended borrower to provide a copy of the Third Party agreement; and
   4. attach such agreement to the actual loan agreement.
6. Explain to the intended borrower all the terms of the loan agreement, in particular
   1. the interest rate per annum and total interest payable under the loan agreement;
   2. the repayment amounts; and
   3. the consequences of a default in repayment; and
7. Seek confirmation in writing from the Third Party to that
   1. he has not and will not receive any benefit from the intended borrower for his role in the loan, and
   2. the Third Party has not agreed with the intended borrower that the intended borrower provide any benefit to any other party, whether for purchase of any goods or services;

and keep written, video or audio records, to prove compliance with all the above.

2. Registration Obligations

Each licensed money lender must inform the Registrar of Money Lenders about each Third Party, by submitting a “Notice of Particulars of Third Party Appointed by Licensed Money Lenders in relation to Granting of Loans” (ML-ATP 1 form), to include the name, address and identification number of each such individual or company considered as a Third Party.

Upon successful registration to the Registrar of Money Lenders, the name and address of a Third Party will appear on the Register kept by such Registrar of Money Lenders.

3. Personal Data Obligations

Each licensed money lender has an obligation to take steps to ensure that the collection and usage or disclosure of all personal data for the purposes of or in relation to the licensed money lender’s business would be in compliance with the provisions of the Personal Data (Privacy) Ordinance (Cap 486).

4. Advertising Obligations

Any money lending advertisement, whether published by a licensed money lender in his own name or through another person, in any form, must contain the following:

1. The money lender’s telephone hotline for handling complaints; and
2. A risk warning statement in the same language as that of the advertisement or the relevant part thereof, in specified form.

QUESTION: Are the Conditions a stop gap measure, or a long term solution?

The Conditions suggest that there is no current intention to regulate the “financial intermediaries” themselves, as the extended protection for a borrower now comes from imposing more onerous obligations on the actual licensed money lenders themselves.

The argument that the Conditions will be a long term solution may be weak, given that no due diligence will be conducted on the “financial intermediaries” themselves, so there will still remain loopholes for unscrupulous “financial intermediaries” to take advantage of borrowers, it is merely that those financial intermediaries will be shown on a Register. 

Practically, whether the Conditions work will be seen from on the number of complaints now lodged with the Hong Kong Police regarding unscrupulous “financial intermediaries”.

This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.