Mary is interested to join a popular gym in Kuala Lumpur. The gym offers her what seems to be an attractive package – pay a lump sum upfront for a whole year’s membership in order to get a discount. Mary signs up for the package and pays the membership fees for the whole year. Things go great but after 3 months, Mary finds out that she is being transferred to Shanghai. She tries to cancel her gym membership but is informed by the gym staff that there are no refunds and no cancellations allowed.
The above situation is quite common in Malaysia as businesses find it more lucrative to collect payment upfront for services yet to be rendered. This is known as a “future services” contract – ie, the consumer pays for services to be redeemed or used at a later date. Aside from gym memberships, this is a popular business model for beauty and health treatments (eg: spa packages, manicure and pedicure, etc), learning and education, and even matchmaking services. Problems usually arise when the consumer is unable to utilize the package completely and tries to get a refund. A standard response would be for the business to quote the “no refund and no cancellation” policy, typically buried in the fine print of their terms and conditions.
What many people don’t realise is that a “no refund and no cancellation” policy for future services contract violates the Consumer Protection Act 1999 (“CPA“).
Section 17 CPA specifically provides that a consumer who cancels a future services contract can only be charged :
(a) 5% of the full contract price;
(b) the cost of any goods the consumer used or is keeping; or
(c) the portion of the full contract price representing services received by the consumer
Simply put: a consumer is entitled to a refund for the unused portion of the package. The business owner is required to refund any extra payment by the consumer within 14 days from cancellation. Further, under Section 17 CPA, a cancellation of the future services contract may be communicated by “words or conduct”, which means that it is not necessary to put the termination in writing (unless there is a special provision in the contract which says that a notice of cancellation must be in writing). That being said, it is always advisable to have any sort of termination as a record.
The Minister of Domestic Trade, Cooperatives and Consumerism have issued the Consumer Protection (Future Services Contract) (Amendment) Order 2014 (which came into effect in July 2014) to specifically state the categories of services that would fall under the definition of “future services”:
Category of Services
Type of Services
|1.||Body treatment and beauty||Weight management and body shaping
Facial beauty treatment and face shaping
Hair and body hair treatment
|2.||Fitness and health||Gymnasium
|3.||Recreational, lodging and entertainment||Theme park
Hotel and apartment
Mental arithmetic class
Tuition class in accordance with curriculum or module in school, college or university
|5.||Personal skill development||Cooking class
Sewing class (including embroidery)
Interior design class
Flower arrangement and handicraft class
Arts and design class
Singing or dancing class
Swimming class (including scuba diving)
Martial art class
|6.||Maintenance||Insect and pest control
Vehicle washing and cleaning
Towing broken-down vehicle
|7.||Other services||Matchmaking agency
Memorial and crematorium management
It is important for consumers to realise that there is a difference between a future services contract and a deposit or a booking fee, which is usually an initial payment to demonstrate the earnest intention of the buyer, and may be non-refundable depending on the terms of the contract. It is different from a future services contract which requires consumers to pay an upfront fee for services or goods which have yet to be rendered / delivered.
Consumers should not assume that whatever is stated in a contract is binding and legal. They should educate themselves on their rights under the Consumer Protection Act 1999 to ensure that unscrupulous business practices can be eradicated.