What Nova Got Nailed For

News of NOVA's punishment has been widely reported in the media. The nuts and bolts are are this: For a period of six months, NOVA will not be able solicit, accept, or conclude any new contracts exceeding one year. This means no contracts for courses more than a year or courses longer than 70 hours. Existing contracts are not affected by METI's punishment.

The media has covered the basics. Here's The Japan Times:

"We have concluded that (Nova's way of signing up students) was extremely malicious," said a METI official who briefed reporters about the order.

Nova "engaged in illegal acts, with the top management at its head office authorizing the irregularities. The company even compiled a manual advising staff on how to respond to claims by students."

[...]

METI has been investigating business irregularities at Nova since it inspected the company's headquarters in Osaka in February.

The investigation has uncovered that several Nova schools did not give full refunds to people who canceled lessons, the officials said.

In addition, some people have reported that Nova misled them into believing their cooling-off periods had expired and they could not cancel their contracts.

METI has issued a 22-page press release [in Japanese] detailing how NOVA violated the Specific Commercial Transaction Law, what punishments and improvements were ordered, and anecdotal evidence of NOVA's shady practices. Let's take a look at the specific violations of the law. The information in parenthesis denotes the sections of the Specific Commercial Transaction Law NOVA violated. The text below corresponds to pages 1-4 of the METI press release.

I. Nova Corporation (herein, Nova) violated the Specific Commercial Transaction Law (herein, The Law) in conducting is business regarding contracts for foreign language lessons such as regular courses and the like.

1. Inadequate documents (Article 46, paragraphs 1 & 2)

Outline documents and contracts contained no explanations about cooling off periods for related goods*or information regarding the cancellation of contracts. Documents indicated that the start of the service period was the date one registered his or her name with Nova even though no contract defining the start of the service period had been finalized.

*Related goods refers to merchandise that must be purchased for the specified continuous service (foreign language lessons).

2. Misleading advertising (Article 43)

Advertisements contained indications that were considerably different from the truth and mislead consumers into believing that if they signed up during a campaign period the sign-up fee would be waived, when in fact sign-up fees were not normally charged throughout the year.

3. Misrepresentation (Article 44, paragraph 1)

a. In soliciting contracts, Nova informed consumers that they could reserve lessons in their chosen time slots when in fact these time slots were difficult to reserve.

b. When more than eight days had passed after consumers registered their names and addresses with Nova but had not concluded a contract, and when less than eight days had passed following the conclusion and delivery of a contract, Nova informed consumers that the cooling off period did not apply. Nova also informed consumers that they had received permission from METI regarding the cooling off period when in fact they had not.

c. Even though consumers had concluded contracts in which the sign-up fee was waived, in announcing their intention to cancel their contracts, consumers were told that the sign-up fee was deducted from the course fees, and that since the sign-up fee was listed in the contract, part of the fee would be deducted as an initial cost when canceling a contract.

4. Failure to disclose important matters (Article 44, paragraph 2)

While knowing that certain time slots were difficult to reserve at many schools, Nova failed to inform consumers of this fact when soliciting contracts.

5. Refusing to perform or unjustly delaying performance of obligations that occur through the rescission of contracts in whole or in part (Article 46, item 1)

a. When consumers concluded contracts after being told that the sign-up fee would be waived, and then later canceled their contracts, Nova included the sign-up fee in the tuition amount when calculating refunds and refused to refund an amount equivalent to the sign-up fee to consumers.

b. Under Nova's point system (1 point entitles consumers to a 40-minute lesson), a fixed percentage of points expired after a fixed period of time, but when consumers canceled contracts for reasons attributable to Nova, such as being unable to make reservations for lessons, in calculating refunds, Nova treated the applicable points as if they had expired and did not refund the money owed to consumers. This system was used only when a consumer canceled a contract. Furthermore, when consumers canceled contracts for reasons attributable to Nova, such as being unable to make lesson reservations, Nova, without justification, calculated the used points at a higher rate than they were originally purchased at, and did not refund money owed to consumers.

c. When consumers used credit cards to pay for lessons, in calculating refunds using the cancellation formula based on the contract Nova had with its consumer credit company, costs that should have been born by Nova in calculating the refund were charged to consumers, and money owed to consumers was not refunded.

6. Refusal to discharge obligations arising from the cancellation of contracts for related goods (Article 46, item 3 and Article 39, item 6 of the ministerial ordinance)

a. When consumers concluded contracts and purchased videophones after being informed that the videophones were required for the lessons and then later canceled their contracts, consumers were told that the videophones were not required for the lessons nor were they related goods, and were refused a refund.

b. In concluding contracts where consumers purchased materials after being informed that they were required for their lessons and then consumers later canceled their contracts, no refunds were given for the materials even when they were unused or the packaging was partially opened and in a returnable condition.

II. In Nova's children's lessons (Nova Kids), in which fees are paid monthly, when contracts were concluded where the total cost of the sign-up and lesson fees was 50 thousand yen or more, notwithstanding that the specified continuous services fell under The Law, Nova maintained that the services were not subject to The Law and therefore not subject to a cooling off period, and failed to deliver statutory documents.

III. Nova admitted to company-wide violations of the aforementioned items in following manuals, directives, and instructions issued to all schools by head office when soliciting contracts from consumers.

IV. Over the next two years, Nova shall report quarterly all complaints regarding the solicitation, conclusion, and cancellation of contracts, as well as how it handled complaints to the Ministry of Economy, Trade and Industry, who shall provide guidance based on the contents of the report.

V. Nova admitted to the following violations to which the Ministry of Economy, Trade and Industry provided administrative guidance.

a. Regarding Voice lessons*, Nova informed consumers that they had to sign a contract for a set that included regular lessons despite the fact that it was possible to sign a separate contract for regular lessons (Article 44, paragraph 1).

*Voice lessons are free-conversation classes where a student can improve their conversation skills by talking with an instructor waiting in a room. One ticket allows a student to freely attend Voice lessons all day.

b. When consumers who had already purchased contracts concluded new contracts for lesson points, Nova did not deliver outline documents and the contract itself. When consumers tried to exercise their right to a cooling off period, Nova informed consumers that the cooling off period was not applicable (Article 42, paragraphs 1 and 2 & Article 44, paragraph 1).

Read Part 2

Read Part 3

Download the entire press release