What Nova Got Nailed For Part 2

I've finally gotten around to continuing my translation of METI's press release on the punishment of Nova. This section corresponds to pages 5-10 of the press release. This passage expands on the first portion of the punishment and describes the punishment in more detail. I've also tried to rationalize the numbering system to make it easy to look up parts in the Japanese version if you want to follow along. In doing so, I've also updated and polished the first part of the press release a bit so that it better matches with what follows below.

I also used the semi-official English translation of the Specific Commercial Transaction Law as a reference. If the translation sounds stilted it's because I decided to borrow from the translation. This is for information after all. ;-) You can download a Japanese & English translation of the law here [467KB PDF], and find other translations of different laws here.

Details of the administrative punishment concerning Nova Corporation

I. Corporate profile

1. Name: Nova Corporation (Nova)

2. Representative: Nozomu Sahashi, president

3. Head office: Osaka Prefecture, Osaka City, Chuo-ku, Nishi Shinsaibashi, 2-3-2

Offices: Tokyo-to, Shinjuku-ku, Nishi Shinjuku 2-4-1, plus 924 schools across Japan (as of February 2007)

4. Established: May 14, 1974

5. Capitalization: 5 billion yen

6. Goods and services: Goods include teaching materials such as texts and CDs, and videophone systems. Services include regular courses, such as ekimae room lessons and ochanoma ryuugaku, Voice, and children's lessons (Nova Kids).

7. Sales: 66,900,690,000 yen (fiscal 2005)

8. Employees: 2,522 (not including foreign instructors) as of the end of January 2007.

II. Business overview

Nova Corporation (herein, Nova) is headquartered in Osaka City with an office in Shinjuku Ward, Tokyo and over 900 schools across the country that provide regular foreign language lessons (such as ekimae ryuugaku room lessons and ochanoma ryuugaku), Voice, and lessons for children known as Nova Kids, via a reservation system.

Nova concludes contracts between consumers relating to specified continuous service offers and the like prescribed by the Specific Commercial Transaction Law (herein, The Law). In concluding said contracts, Nova solicits packaged sets of books and CDs required for lessons, sales contracts for videophone systems, as well as contracts for foreign language lessons to consumers who visit schools after seeing various advertisements. (Nova admitted that it made solicitations that rental contracts for for videophone systems were possible and these instances are thus exempt from this decision).

III. Details of the administrative punishment

1. Partial suspension of business (Article 47, paragraph 1)

Nova shall suspend the following operations (excluding the renewal of contracts) for offers of specified continuous services whose duration is greater than 1 year or 70 hours (excluding Nova Kids) for a period of six months from June 14, 2007 until December 13, 2007:

1. The soliciting of specified continuous service contracts.

2. The receiving of applications for specified continuous services.

3. The conclusion of specified continuous service contracts.

2. Orders (Article 46)

Regarding the provision of specified continuous services (excluding Nova Kids):

1. Outline documents (price lists) must be provided before a contract is concluded.

2. Contracts shall be delivered, without delay, upon their conclusion.

3. In advertising the terms and conditions of services, the display of the consideration for the services shall not be significantly different from the actual price so as to cause misunderstanding.

4. No misrepresentation shall be made in soliciting contracts or to prevent the rescission of such contracts.

5. No misrepresentation shall be made in soliciting contracts that intentionally fails to disclose important facts.

6. Nova shall not refuse to discharge all or part of its obligations arising from the rescission of contracts.

7. Nova shall not refuse to discharge all or part of its obligations arising from the rescission of contracts for related goods.

Regarding the provision of specific continuous services relating to Nova Kids:

1. Outline documents must be provided before a contract is concluded.

2. Contracts shall be delivered, without delay, upon their conclusion.

3. No misrepresentation shall be made in soliciting contracts or to prevent the rescission of such contracts.

IV. Order to suspend operations and the facts resulting in administrative punishment

1. Inadequate documents

a. Inadequate outline documents (Article 42, paragraph 1)

Nova's outline documents (price lists) did not contain statutory indications for related goods such as videophone systems, and contained indications that the period of offering services began on the date one registered his name and address with Nova when in fact the period should begin from the date the details of the contract are decided upon and those details are delivered in a contract. Furthermore, Nova did not contain statutory information in documents thought to be outline documents delivered to consumers before contracts were concluded for Nova Kids lessons.

b. Inadequate contracts and delivery (Article 42, paragraph 2)

Nova's contract forms (Nova Application Form) contained statutory misstatements regarding the period of offering services (the start date for offering services was the date a student registered at a school without finalizing a specified continuous service contract), and also did not contain contain statutory information for related goods such as videophone systems. Furthermore, in concluding contracts for Nova Kids lessons, Nova did not deliver contracts that clearly listed the details of the contract.

2. Misleading advertising (Article 43)

In advertising the terms and conditions for specific continuous services during periods such as Spring campaigns, consumers were misled by advertisements containing indications that if they signed up during the campaign period, the sign-up fee would be waived, even though sign-up fees were not normally charged throughout the year.

Furthermore, in advertising the terms and conditions of its services, Nova's ads contained statements such as "Campaign underway! Campaign limited for the first 10 at each school to sign up! No sign-up fee & up to 10% cash back on lesson fees" that offered discounts to the first 10 consumers to sign up. In reality, however, head office instructed that the number of consumers concluding contracts based on the above campaign promotions exceed 10, and if the number of new contracts at one school during the campaign exceeded 10, that the excess contracts be shifted to schools who had space in their campaign quotas. Quickly concluding contracts based on price was conspicuous and caused consumers confusion.

3. Misrepresentation

a. Misrepresentation relating to the solicitation of contracts (Article 44, paragraph 1, item 1)

i. In soliciting contracts for ekimae ryuugaku room lessons, Nova informed consumers that they could take lessons at their convenience or that the reservation system meant that students could take lessons when it suited their schedule, although students were unable to take lessons because certain time slots were difficult to reserve.

ii. In soliciting contracts for Voice lessons, Nova was suspected of informing consumers that the service was a set package and that contracts could not be sold unless Voice tickets, which always come with the set, were purchased, even though it was possible to sign separate contracts (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. Misrepresentation relating to the rescission of contracts (Article 44, paragraph 1, item 6)

i. Although The Law provides a cooling off period from the date a contract is concluded and a contract detailing the services to be provided is issued, Nova deemed the date consumers registered their name and address with a school as the start of the cooling off period despite no formal contract being concluded, and informed consumers that the cooling off period did not apply even when a contract was concluded and a contract detailing the services to be provided was delivered within the 8-day period. Nova informed a consumer information center staff member, acting on behalf of consumers in negotiations to have a contract canceled, that the cooling off period did not apply because they had received permission from the Ministry of Economy, Trade and Industry when in fact they had not.

ii. In soliciting contracts, Nova concluded contracts by informing consumers that no sign-up fee would be charged if they "joined before the end of May" or that "the sign-up fee would be waived for this period only." However, actual contracts listed the sign-up fee as 31,500 yen, and when consumers pointed this out, they were told that the sign-up fee was deducted from the lesson fee, and that the listing of the sign-up fee was simply a formality. Later, when consumers requested to cancel their contracts, in refund statements presented to consumers, they were told that since the sign-up fee was listed in the contract, part of it was deducted from the refund as an initial cost.

iii. Lesson fees for Nova Kids classes are paid on a monthly basis, but in concluding a contract, the lessons were sold as a package costing more than 50,000 yen which included a sign-up fee, 3 months of lessons (the lesson fees plus facilities usage fees) as well as textbooks and CDs. Although the lessons are specific continuous services in The Law, Nova told consumers who wanted to cancel contracts during the cooling off period that since Nova Kids lessons did not fall under the Specific Commercial Transaction Act, the cooling off period did not apply.

iv. When consumers who had already purchased contracts, concluded new contracts for lesson points (for example,new expiry dates, and the sign-up fee had been paid again) Nova was suspected of not delivering outline documents and the contract itself (Article 42, paragraphs 1 and 2). Furthermore, when the aforementioned consumers notified Nova of the cooling off period, Nova was suspected of informing them that since the new contract was a continuation of the existing contract, the cooling off period did not apply (Article 44, paragraph 1).

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

While clearly knowing that certain time slots for ekimae room lessons were difficult to reserve at many schools, Nova did not inform consumers of this 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 informed that the sign-up fee would be waived, and then later canceled their contracts, the refund document delivered to the consumer listed the sign-up fee as part of the tuition fee in the calculation of the refund, and Nova refused to refund an amount equivalent to the sign-up fee owed to consumers.

b. For a number of consumers who canceled contracts for reasons attributable to Nova, such as being unable to make reservations for lessons, in outline documents prior to October 15, 2005, Nova set the expiry date so that the first third of the lesson points would expire one year after the contract date, the second third of the points would expire two years after the contract date, and the last third would expire three years after the contract date. When contracts were canceled for reasons attributable to Nova, unused but still valid points were treated and calculated as expired points, even though no reasonable grounds existed to treat them as such, and money that was owed to consumers was not refunded.

In actual operations, however, for consumers who continued taking lessons with no intention of canceling their contract, even if they do not use one third of the points within the first year of the contract, Nova does not invalidate a portion equivalent to one third of the used points, but when consumers intend to cancel a contract, Nova's explanation of the point deductions is thought to be intended to discourage cancellations. Ultimately, the expiry date is said to be the date that the contract is canceled.

In directives related to the Specific Commercial Transaction Law, the Ministry of Economy, Trade and Industry has stated "In principle, the price used upon concluding contracts and no other price can be used without reasonable justification," but when consumers canceled contracts for reasons attributable to Nova, such being unable to reserve lessons, the closure of the nearest school, or it had become difficult to attend lessons, Nova, for no justifiable reason, did not use the point price when the contract was concluded, but the point price of the nearest course with a lower number of points (and a higher point price than the contracted points) to calculate the refund, and did not refund money owed to consumers.

After the Supreme Court rendered a decision on April 3 stating that points should be refunded at the price they were purchased, the Ministry of Economy, Trade and Industry revised the said directive to reflect the Supreme Court's decision.

c. Where consumers paid for lessons using a consumer credit company with which Nova had a merchant contract with, and then decided to cancel their contract, Nova charged consumers an "education loan contract cancellation fee" using the cancellation formula based on the contract with the consumer credit company it had a contracted with, and costs that should have been born by Nova were charged to the consumer, and money owed to the consumer, defined in article 49, paragraph 2, item b of The Law (50 thousand yen or 20% of the consideration for the specified continuous services not offered whichever is lowest) as "an amount of damages that are normally caused" was not refunded to consumers.

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

a. In concluding contracts where consumers purchased videophones after being informed that they were required for their lessons, and then later canceled their contracts, consumers were told that the videophones were not required for the lessons and were not a 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 later canceled their contracts, no refunds were given for the materials even if they were unused or the packaging was partially opened and in a returnable condition.

Read Part 1

Read Part 3

Download the entire press release