Commerce Commission deputy chairwoman Anne Callinan said it meant the gym was attracting customers by publicising a price that did not exist.
“The 3% fee was charged to over 125,000 members and created approximately $1.6m of additional revenue for CityFitness,” Callinan said.
“This created a misleading impression that the fee was a surcharge related to a customer’s choice of payment. Our investigation found its actual purpose was to lift overall business revenue.”
Representing the commission at sentencing, Jacob Barry said CityFitness pocketed about $1.6m from stealthy fees.
The commission sought a penalty of $1.5m to $2m.
CityFitness pleaded guilty to eight charges under section 11 of the Fair Trading Act (FTA).
The charges alleged CityFitness engaged in conduct liable to mislead the public on its website, Instagram and Google advertising.
In sentencing, Judge David Clark said decisions made by the company’s senior executives to increase the membership fees to cover increasing operating costs “had the effect of misleading potential members in terms of what they would be paying as a membership fee”.
“CityFitness needed an increase to cover the increasing operating costs but rather than fully disclosing this to its members, it chose to achieve this through a mechanism which was patently false in terms of its true purposes,” Clark said.
“The decision to use the labels of ‘transaction fee’ and ‘payment authority fee’ were approved at the highest levels where the concerns were more focused on marketing and competition outcomes, rather than protecting consumers by making full and frank disclosures as to why membership fees needed to be increased.”
Clark said there was intent by CityFitness to mislead or deceive potential members by not disclosing the true nature of the transaction fee and disguising the fact.
He said while there was nothing wrong with a business protecting itself against high inflationary costs, it must do so in a manner that is responsible, coherent with market practice and consistent with FTA principles.
“CityFitness disregarded the rights and interests of potential members in preference to looking after its own commercial interests. A falsehood was created to do this.
“These actions suggest to me a company who is looking at its commercial position rather than its obligations under the FTA.”
Callinan said businesses needed to be honest with their customers.
“If you are applying a surcharge, you must be upfront and honest about what the surcharge is for. Likewise, advertised prices must not mislead customers about the full and final cost of a product or service,” she said.
“We will continue to uphold Kiwis’ rights and pursue businesses that mislead customers and try to gain an unfair advantage over their competitors by publicising prices that are not what they seem.”
CityFitness chief operating officer Doug Hatten acknowledged the use of a previous transaction fee had the potential to cause confusion.
He said the fee was removed more than a year ago after the business was aware of the commission’s concerns.
“Our intention has always been to keep costs as low as possible for our members and make health and fitness accessible to all, and we accept the commission’s view that eliminating the transaction fee in favour of our current pricing provides greater transparency for consumers,” Hatten said.
“We apologise to anyone who may have been confused by the previous fee and understand the importance of operating within the commission’s guidelines.”
Tom Raynel is a multimedia business journalist for the Herald, covering small business, retail and tourism.
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