Writing an article on martial arts school scams

[sadan]

But you're totally right about the trade-off there. We used to use a billing company, and while it was helpful in some ways.... it meant that we had less control over the student/customer experience. There could be issues going on that we knew nothing about, and things we couldn't help students with... Oh, and for what it's worth..... I don't know about all billing companies, but the one we used didn't buy the contracts from us, they just collected the money for us and took a percentage.

Sympathetic about dealing with collections. It's tough and been there. Some think everyone else is a bank... Authorizing a billing company can work although you identified a hot spot - incentive based collections. They may prefer not to bring you in since doing so might result in concessions which could cost them money. But as you know, at least you have some control since you can terminate your relationship if you don't like what you're seeing. Hope things work out well for you.

With an assignment the school has no say, even though they may receive a piece of the incoming revenue stream. The billing company legally owns the right to demand payment from the student and sue them if they don't pay. When outsourcing billing, be careful of which arrangement you're actually making.

 

[Gerry Seymour]

Sympathetic about dealing with collections. It's tough and been there. Some think everyone else is a bank... Authorizing a billing company can work although you identified a hot spot - incentive based collections. They may prefer not to bring you in since doing so might result in concessions which could cost them money. But as you know, at least you have some control since you can terminate your relationship if you don't like what you're seeing. Hope things work out well for you.

With an assignment the school has no say, even though they may receive a piece of the incoming revenue stream. The billing company legally owns the right to demand payment from the student and sue them if they don't pay. When outsourcing billing, be careful of which arrangement you're actually making.

I agree with that last caveat. If a billing company has collection rights, and pursues them "vigorously", that reputation may be attached to the school. Nobody wants the word about their school to be, "Don't go there. I got laid off and had to quit taking classes, and those guys hounded me for months over payment for classes I didn't go to." Doesn't matter that it wasn't your school hounding them, they likely don't make that distinction.

 

[Gerry Seymour]

In NH, it is not legal to REQUIRE a long term contract. You have to offer a month to month option.

http://doj.nh.gov/consumer/documents/chapter-358-s.pdf

Many martial arts schools in NH state in their advertising that "No Long Term Contracts Required!" as though this is not the norm.

Just an example for your paper. Not quite the level of fraud, but not right for businesses who claim to be all about integrity.

It's an accurate statement, and addresses a concern among their potential customers. Just because the state doesn't allow the requirement, that doesn't mean consumers don't think it's a likely problem (remember, they may be reading warnings on the Internet, where that's a common warning). There's no lack of integrity in making that statement.

 

[Gerry Seymour]

Thanks. APS is one of the unchecked options. Perhaps the place didn't want to reprint new agreements.


Unfortunately it goes both ways. Sending to collections can be necessary. I have seen incorrigible, unethical students who only care to get what they want. It's a nightmare when they threaten to besmirch the school's excellent reputation unless they get what they want. But at least the agreement is in your control.

I'm guessing some are uncomfortable and perhaps engage in assignment. It's not necessarily evil but I suggest you consider the impact. My friend's problem should have been easily settled. You'd probably be willing to discount a student's membership fee in proportion to a 2 week mistake you made - that seems fair. But the financial institution may tell the student they don't care. And now it's your problem. And it's an entirely different thing when a student is told during the trial/presale stage "trust us" only to have the contract sold elsewhere from day one. Consumers will fail to differentiate honest schools from sales mills like these and the growth of this practice leads to the same poor reputation that has surrounded fitness clubs.

The way I've structured payment options and handling payment seems to have removed the concern about those unethical students. If they haven't paid, they don't train. I don't do contracts (which give a discount on the promise of ongoing payments). Instead, I offer a discount for up-front payment. Most students prefer the monthly option, but I have options for quarterly, semi-annual, and annual payments, as well. If a student were to quit during a period they'd paid for, I'd refund what they didn't use, calculating against the normal monthly payment (so, if they paid for 6 months and attended 3, they won't get quite half back, because of the discount they received).

 

[Gerry Seymour]

Thanks. APS is one of the unchecked options. Perhaps the place didn't want to reprint new agreements.

It's likely they're using standardized forms that came with some billing company software. Often, those forms are updated by the providing company, but the users don't know they can get updates, so they don't bother unless something needs to change. In this case, it doesn't look like the school was using APS, so they never needed the change.

 

[Gerry Seymour]

This kind of thing can really only be solved with standardisation of martial arts, which has proven successful with ITF, or the Gracie family.

That's standardization within a style. That has never been a realistic possibility across styles.

 

[Gerry Seymour]

So if there was only 1 or 2 little league baseball teams in town and they would have the same one year contracts, your son would be the one to sit out. And if there are only 3 gyms in the area (such as there are in mine) but only 1 that is even half decent with a 1 year contract you'd forgo the gym too. Same goes for Internet service. I'm not saying you should sign a dumb oppressive contract because it's the only game in town. You shouldn't. But the world isn't black and white and people need to find solutions that frequently fall in the middle. Regarding Best Buy contracts, I said "service contracts" and not extended warranties, which at times can work out. It was not meant to debate specifics, the point is illustrated below.


I'm guessing that for the same reason you don't purchase any insurance except as required by law because the odds are clearly against needing it. Only suckers are harmed in buying peace of mind and security (which is what they feel they prefer) instead of playing the mathematical odds...

While I'm sure the schools in your area are so flourishing that they need to turn students away, many schools in my part of town start off with best of intentions only to discover that it's much harder to make ends meet than anticipated. When in need, they sell their debts to others thinking it will buy them some time with minimal harm. And following this rabbit hole I've discovered that this is going on far more often than anticipated. And what really got me disgusted was that the "billing company" refused to credit my friend for the time that her school failed to communicate with her the procedure to terminate services as a result of the injury she suffered very early on. And now I understand why...

My motivation? Many years ago I learned that most people aren't nearly as knowledgeable as you are and also foolishly believe people keep their word and honor agreements, such as friends and family. And furthermore, leverage is king because the cost of using the law to obtain justice can be prohibitive. As a result, I founded a site that helped people help themselves by creating a central repository of legal information and advice on how to deal with common problems where hiring an attorney was not an option. So I guess it's shame on me for my "crusade" in trying to keep people honest...

I find that some instructors go the billing company route simply because they don't have to do that work any longer. No more accounting for payments. No more time spent handling money and keeping records between classes. And it can even be easier for students, since the billing companies will set them up with recurring payments, rather than them having to remember to make a payment every month.

If I had a program big enough, I'd look for a billing company that has the option to handle collections, but where I own the debt unless I assign it to them. That would leave me in control, while having the advantages I mentioned above.

 

[Gerry Seymour]

There is no way that I would sign a long term contract with a martial arts school ... ever. I would likewise not sign a long term contract with a fitness center, personal trainer, or little league baseball team. It is fairly easy to find respectable martial arts schools that don't require long term contracts. I never buy service contracts from Best Buy. If you do a little research, you'll find that they are generally superfluous and are almost never worth the money paid for them. This is why Best Buy offers a service contract with everything they sell as it is a large money maker for them.

In the words attributed to P.T. Barnum, "there's a sucker born every minute". I'm sure there are a great many more people getting ripped off with unneeded service contracts and bogus auto warranties than there are from unscrupulous "martial artists". Since you aren't interested in trying to save all of those people from themselves, it makes me wonder what your ultimate motivation is. Did you get burned with a martial arts contract at some point, or is it just serendipity that got you on this crusade?

There's a difference between "require" and "I would never". If my primary instructor had offered a long-term contract with a discount, I'd have taken it. It would have been a good deal for me, with fairly low risk (sure, I could get injured, etc.). I would be unlikely to train someplace that requires them, though.

 

[Gerry Seymour]

Since you aren't interested in trying to save all of those people from themselves, it makes me wonder what your ultimate motivation is. Did you get burned with a martial arts contract at some point, or is it just serendipity that got you on this crusade?

So, either save all of them, or you have an ulterior motive? False dichotomy.

 

[Gerry Seymour]

I just performed some follow up. There are at least 4 dozen angry complaints against the membership and billing company that handle these services for several dozen different martial arts clubs. My guess is that these were the contracts which were assigned and not all of them are. In the instance of my friend, perhaps the school owner needed the money and sold her contract the moment it was signed. There is no way that the average consumer understands how this works...

Be skeptical about complaints against billing companies. If they handle 10,000 accounts and there are 50 complaints, that's not too shabby. And complaints are often (not always) overstated, because emotion affects memories and people complain based upon their reaction to the process rather than the facts of the situation. Some complaints are valid and genuine, while others will be people over-stating the problem and under-stating their own responsibility.

Here's an example. There was a time in my life when a business failed and left me with almost no income for several months. During that time, I worked very hard to make the payments that were absolutely necessary to me (car payment, etc.), and other simply had to be let slide, because there was no money left. I could have posted a complaint about how GMAC financing kept calling me and threatening to take away my car. That would be a factual statement, and I could have inflated it a bit to make it sound worse (without even realizing I was using inflammatory langauge). The fact was, they were very patient. They called often, but actually never threatened to take the car - they just let me know each time what action I had to take to avoid that happening. They were reasonable, and helped me keep my car until I could get caught up. Had I complained, it could easily have looked very bad for GMAC, in spite of their reasonable approach to someone who was, in fact, quite behind on his payments.

 

[sadan]

It's likely they're using standardized forms that came with some billing company software. Often, those forms are updated by the providing company, but the users don't know they can get updates, so they don't bother unless something needs to change. In this case, it doesn't look like the school was using APS, so they never needed the change.

I don't know if the school was using APS at one point. But the identification of this abbreviation helped me understand the company with whom I spoke.

I agree with that last caveat. If a billing company has collection rights, and pursues them "vigorously", that reputation may be attached to the school. Nobody wants the word about their school to be, "Don't go there. I got laid off and had to quit taking classes, and those guys hounded me for months over payment for classes I didn't go to." Doesn't matter that it wasn't your school hounding them, they likely don't make that distinction.

Correct you are. I found one complaint about the school on a review site that also referred to school as being OK but the "billing company" had to change. But in this case, perhaps the school does deserve scrutiny. The reasons for my "crusade" and I'll provide more details that every martial arts school owner considering such a relationship might consider reading.

Be skeptical about complaints against billing companies. If they handle 10,000 accounts and there are 50 complaints, that's not too shabby. And complaints are often (not always) overstated, because emotion affects memories and people complain based upon their reaction to the process rather than the facts of the situation. Some complaints are valid and genuine, while others will be people over-stating the problem and under-stating their own responsibility

Agree with you 100%. Many hate the tax and bill collector / assessor who is just doing his job. And the excuses coming from debtors can be ridiculous. But there is a difference between doing bad debt collection and some hybrid. Your great posts prompt more information to share:

This large "billing company" told me that a welcome letter was sent to my friend shortly after she signed up with this martial arts school. I haven't seen that letter but I'm guessing it doesn't go like this:

"Hi there! Your friendly martial arts instructor and his trustworthy school who just signed you up to take Karate classes immediately sold the rights to your long term agreement to us in exchange for a pile of cash, some residual payments and billing services. So we're going to focus on collecting money from you every month for the next 1, 2 or 3 years. If you have any issues about what you were represented during the sales process, any problems at the school, suffer an injury - don't talk to the instructors or owners. They signed over that right to us. Talk to us. We'll let you know whether we'll work things out with you."

I don't know the assignment terms between the schools and this company but it does say that the school assigns the rights to this other company. And it could explain why they absolutely refused to even give any credit to my friend for the weeks of time that the school didn't tell her to speak to the billing party. I was told by my friend that the instructor later apologized for the delay, saying that he was trying to figure out how my friend should proceed. When I looked up this "billing company" online I found another complaint similar to mine. Even delays not caused by the member were not taken into account and the student was expected to pay every penny of the bill.

Perhaps this fully explains why I began this "crusade" with the hope that both students and martial arts school owners will avoid a situation like this one. I've decided to take my friend's case pro bono if it comes to needing to duke it out. I doubt any judge or jury will find the facts palatable. Anyway... back to work.

 

[Paul_D]

I am. Didn't you know that?

I missed the memo ;-)

 

[Gerry Seymour]

I don't know if the school was using APS at one point. But the identification of this abbreviation helped me understand the company with whom I spoke.


Correct you are. I found one complaint about the school on a review site that also referred to school as being OK but the "billing company" had to change. But in this case, perhaps the school does deserve scrutiny. The reasons for my "crusade" and I'll provide more details that every martial arts school owner considering such a relationship might consider reading.


Agree with you 100%. Many hate the tax and bill collector / assessor who is just doing his job. And the excuses coming from debtors can be ridiculous. But there is a difference between doing bad debt collection and some hybrid. Your great posts prompt more information to share:

This large "billing company" told me that a welcome letter was sent to my friend shortly after she signed up with this martial arts school. I haven't seen that letter but I'm guessing it doesn't go like this:

"Hi there! Your friendly martial arts instructor and his trustworthy school who just signed you up to take Karate classes immediately sold the rights to your long term agreement to us in exchange for a pile of cash, some residual payments and billing services. So we're going to focus on collecting money from you every month for the next 1, 2 or 3 years. If you have any issues about what you were represented during the sales process, any problems at the school, suffer an injury - don't talk to the instructors or owners. They signed over that right to us. Talk to us. We'll let you know whether we'll work things out with you."

I don't know the assignment terms between the schools and this company but it does say that the school assigns the rights to this other company. And it could explain why they absolutely refused to even give any credit to my friend for the weeks of time that the school didn't tell her to speak to the billing party. I was told by my friend that the instructor later apologized for the delay, saying that he was trying to figure out how my friend should proceed. When I looked up this "billing company" online I found another complaint similar to mine. Even delays not caused by the member were not taken into account and the student was expected to pay every penny of the bill.

Perhaps this fully explains why I began this "crusade" with the hope that both students and martial arts school owners will avoid a situation like this one. I've decided to take my friend's case pro bono if it comes to needing to duke it out. I doubt any judge or jury will find the facts palatable. Anyway... back to work.

The lack of flexibility may have something to do with the terms of the agreement with between the school and the company. If the company is paying the instructor up front for the contracts (instructor gets a contract at $100/month for 1 year, billing company maybe pays him $1,000 up front for the contract - essentially buying the debt). In this case, the company has already paid out the money, and they want their payment. I know these types of agreements exist, though I'm not sure how often they are used in the MA industry.

 

[sadan]

The lack of flexibility may have something to do with the terms of the agreement with between the school and the company. If the company is paying the instructor up front for the contracts (instructor gets a contract at $100/month for 1 year, billing company maybe pays him $1,000 up front for the contract - essentially buying the debt). In this case, the company has already paid out the money, and they want their payment. I know these types of agreements exist, though I'm not sure how often they are used in the MA industry.

Yes, they certain do and theoretically they can happen. Thanks to your prompting, I did a search and just found a contract from such a billing company online. It doesn't seem nearly as harsh as the possible example. In this instance:

• The contract is assigned to the billing company who is the exclusive biller
• There are cancellation fees if the school terminates a billing agreement unless (a) the member has a states a desire to cancel and may have a right such as death, full disability and moving; or (b) if the member wants to cancel, the school can also cancel the contract but must pay the billing company whatever fees are outstanding and billable by the member and the school. (On demand, they can opt to pay a two digit fee to cancel the contract plus outstanding expenses / amount owed by member);
• There is a percentage paid of the revenues to the billing company depending upon the types of payments made, e.g. credit card, etc.
• The agreement IS cancelable by the school but it requires at least 90 days prior written notice.
• There is a hold back of a pretty sizable amount for bad debts, chargebacks, etc.
• The school has a couple of advance withdrawals it can opt for a fee.

OK... so assuming this is the agreement, it's some good news. I'm guessing that the school could cancel my friend's contract. But since the friend's agreement to pay was assigned to the billing company, the latter decided that it doesn't care about the delays on the school's part. But she's not paying for the school's delay so either the school eats it and pays it to the billing company or there is a dispute. My friend also doesn't care to release all her medical records so a legal department can declare a permanent disability. And if these terms apply, the school can simply agree that the injury is really serious enough...

So perhaps in this case it's a way for a school to let someone else be the face of the feared bill collector and do the dirty work. And if that doesn't work then the school can let the member out of the contract -- but it will pay for that privilege. And it's exactly the issue that many of you experienced masters and school owners have stated. While it may not be so draconian, it can certainly create very difficult issues that can affect the reputation of the school. Thinking out loud with all of you has certainly been most helpful.

 

[Andrew Green]

So perhaps in this case it's a way for a school to let someone else be the face of the feared bill collector and do the dirty work.

This is generally the reason to use a billing company. It saves the school from having to chase down people for late / missed payments. It lets the billing company enforce the contract. It keeps money out of the direct relationship between the instructor and the member.

In most cases yes, there is a way the school can cancel a contract. But, it's entirely up to them if they want to allow early cancellation. You can't generally cancel service agreements in other industries early, but because martial arts schools are generally independent and you deal with the owner on a daily basis in a friendly way people tend to expect it. But a big chain gym? cell phone? Lease? Internet provider?

If you sign a one year membership, then plan to pay for one year. If you don't want to sign a one year membership find somewhere that will take month-to-month memberships, or pay a higher rate for a month-to-month.