Top court acts to protect consumer rights

China's top court has urged courts nationwide to crack down on companies that lure customers into prepaid purchases without delivering services, aiming to strengthen consumer protections and promote business integrity.

The Supreme People's Court issued a 27-article judicial interpretation on handling civil cases involving prepaid consumption on the eve of World Consumer Rights Day, which takes place on March 15 each year. The move responds to public concerns and seeks to ensure the healthy development of advance payment models, said Chen Yifang, chief judge of the court's First Civil Division, at a news conference on Friday.

For years, disputes have arisen when prepaid service providers — such as gyms, beauty salons and educational institutions — shut down or cease operations after consumers have already purchased services or recharged their membership cards.

In one case disclosed by the court, a consumer surnamed Zhang paid 2,000 yuan ($277) for a one-year gym membership on July 2, 2023, which included 60 fitness sessions. The gym abruptly ceased operations in August, after Zhang had participated in just 12 sessions. Zhang sued the gym operator, seeking a refund for the unused 48 sessions.

A grassroots court ruled in Zhang's favor, ordering the gym to refund 1,600 yuan for breaching the prepaid contract.

"Prepaid consumption, widely adopted for its cost-saving benefits, is designed as a mutually advantageous practice," said Wu Jingli, deputy chief judge of the division. By paying upfront, consumers often enjoy discounted rates or bundled services, while businesses benefit from steady cash flow and customer retention.

"However, this advance payment model carries risks when operators treat prepaid funds as informal financing tools, exposing consumers to financial harm if mismanaged," Wu said, adding that the new judicial interpretation aims to address such risks.

Under the guidelines, which take effect May 1, businesses that shut down or cease operations after collecting prepayments — while failing to provide services and evading refund requests — may be deemed fraudulent and subject to punitive compensation. In severe cases, operators could face criminal liability.

The document also stipulates that consumers have the right to terminate contracts and request refunds if businesses relocate in ways that cause inconvenience, transfer operations without consumer consent or fail to deliver services tied to time-based membership cards.

Additionally, consumers will be allowed to cancel prepaid contracts and seek refunds on legitimate health-related grounds.

"For example, consumers who fall ill and lose their hair no longer need hairdressing services. Those who become disabled may no longer require fitness services. Those who are seriously ill and hospitalized no longer need eldercare services. In such cases, they can apply for refunds," Wu said.

Chen said courts will continue working with government agencies to curb practices that harm consumers and disrupt market order. They will also guide businesses to operate with integrity to enhance public confidence in prepaid services.

In 2024, China issued a guideline to tighten supervision over advance payment models used by many eldercare facilities, aiming to regulate the growing senior care sector and protect the interests of the country's aging population.