Nova Raided by METI and Tokyo Metropolitan Government

It seems that Nova is in serious trouble. The front page of the Asahi shimbun this morning carried an article about Nova being raided on February 14 by the Ministry of Economy Trade and Industry (METI) and the Tokyo Metropolitan Government on suspicion of violating the Specified Commercial Transactions Law.

Update I, February 18, 2007

Update II, March 24, 2007

As you may be aware, Nova encourages students to buy lessons in bulk so that the cost-per-lesson to the student is low. The Asahi article gives the following example for the basis of the raid and the complaints from students:

• Nova has different fee schedules depending on how many lesson points you buy. The more you buy, the cheaper the lessons are. In the example, a person pays 720,000 yen to buy 600 lesson points at a cost of 1200 yen per point. The package for 100 lesson points costs 230,000 yen, or 2300 yen per point.
• If the student decides to cancel his contract after using 100 points, he should be entitled to a refund of 600,000 yen (720,000 minus the 120,000 yen worth of lessons used).
• Nova calculates the refund differently using the rate for the 100-lesson point package. Instead of refunding 600,000 yen, the student receives 490,000 yen (100 points x 2300 yen), a difference of 110,000 to the student.

Nova denied any wrongdoing.

Indeed. Nova would probably go out of business if it offered all of its lessons at 1200 yen. If found to be in violation of the law, Nova could be ordered to cease business (presumably they would not be allowed to sign up new students) and clean up its act. This story is all over the Japanese media now, but the Asahi article offered up some examples of Nova's shady refund practices. The following is a quick and dirty summary of the article.

When Nova tries to enroll prospective students, they first get the student to register their name and address with Nova. They then call the student back a day or two later for a level check, and then formally have them sign a contract and enroll them in lessons. According to the Specified Commercial Transactions Law, after signing a contract there is a cooling off period during which a person may cancel a contract for any reason. Nova maintains, however, that effective date of the contract is the day Nova registers the student's name and address implying that students aren't entitled to the refund they think they deserve.

For example, a 46-year old women paid 720,000 yen for 600 lesson points in December 2001. She decided to cancel her contract 2 years later in July 2003 after using 138 points because she had trouble making reservations for lessons and found a large disparity between the motivation of teachers. When she requested the formal paperwork to end her contract, she was forced to wait 2 weeks and received a letter of understanding for her to sign stating that she not to make any further claims regarding the contract. She assumed she would receive a refund of around 500,000 yen for her unused lessons, but received a refund of 260,000 yen instead. She sued, and 3 months later was awarded 510,000 yen.

A 41-year old man also filed a suit against Nova. In his case he bought 600 lesson points for about 760,000 yen, and decided 2 years later in March 2002 to cancel his contract after using 54 points. His refund was only 45,000 yen. The man filed a lawsuit in May the same year claiming that the refund should be calculated at the same rate he purchased his lessons at. The court agreed with him and ordered Nova to pay him 700,000 yen.

According to the man, when he asked a Nova staff member to show him details of his contract, the staff member, while typing away at a computer, replied that she could not.

A 30-year old Kyoto student paid approximately 300,000 yen for 150 lesson points in October 2004 and canceled his contract after using 36 points. Nova sent him an invoice for a refund of approximately 59,000 yen and a letter of understanding. The case is still being litigated in court.

Nova's suspect method for calculating refunds has been a topic among consumer groups. In June 2005, the Consumers Organization of Japan (COJ) conducted phone consultations regarding contract problems at various schools, and reported 62 cases of problems at prep schools and jukus along with some complaints about canceling contracts with NOVA. In September of that year, the COJ requested that Nova revise its method of refunding lessons saying that it violated the Specified Commercial Transactions Law. Nova replied that its method of calculating refunds was widely recognized.

The National Consumer Affairs Center of Japan reported approximately 17,000 consultations over the 5 year period from 2001 to 2005 regarding foreign language and conversation schools. Of the total, approximately 16,000 of the cases were contract-related. According to one official, the center has had about 1,000 consultations and complaints concerning NOVA, more than any other English conversation school.

Update I, February 18, 2007

The Asahi shimbun posted an update to the NOVA raid this afternoon. It sounds like things are getting worse as it looks like students have taken to class action lawsuits.
http://www.asahi.com/national/update/0217/TKY200702170299.html

Here's a quick and dirty summary of the article:

Nova has suffered a series of setbacks in court over lawsuits contesting the way it issues refunds. Although Nova is waiting for a ruling from the Supreme Court, interest in the cases is mounting following the raid by METI on the grounds that Nova violated the Specified Commercial Transactions Law.

There have been at least 8 lawsuits filed in Tokyo, Nagoya, and Kyoto courts claiming that the way Nova offers refunds for unused lessons is unfair because the rate used to refund lessons is higher than the rate the lessons were originally purchased at.

Decisions for six of the lawsuits have been handed down all agreeing with the plaintiffs that Nova should issue refunds based on the price the lessons were initially purchased at. Nova claimed that its refund methods were no different from those used by JR for refunding commuter passes, but the court emphasized the extensive rights of consumers to end contracts outlined in the Specified Commercial Transactions Law.

Nova initially decided not fight its students choosing to settle quickly instead. A lawsuit filed by an Otsu City man in 2003 was settled in six months with Nova refunding the full amount requested. Nova also settled a similar lawsuit filed by a Tokyo women that same year.

In a lawsuit filed in 2004 over a refund of 54,400 yen, NOVA offered to increase the refund to 279,175 yen and then 329,175 yen before going to court.

Nova changed its stance of compromise and decided to appeal to a higher court after word of the lawsuits spread on the Internet. Although Nova appealed two lawsuits with the Tokyo High Court and one with the Osaka High Court, they lost all three appeals and are waiting for the Supreme Court to hand down its decision.

Nova claimed that the calculation method for refunds was agreed upon in meetings with METI in 2001 and 2002. METI raided Nova, however, saying that there were problems with the way it was issuing refunds.

The lawyer representing the students in three of the lawsuits remarked students are left feeling helpless since court costs are usually higher than the amount of money involved. However, in a bid to reduce court fees, students have taken to filing lawsuits in groups as demonstrated by lawsuit filed in September of last year in which 6 students are seeking 1.34 million yen. The case is still pending in the Tokyo District Court.

Update II, March 24, 2007

The verdict is in on one of the lawsuits against Nova's shady refund practices, and the courts have sided with the plaintiff citing that the way Nova issued refunds was in violation of the Specified Commercial Transactions Law. The Asahi and ran brief articles saying that in a suit filed by a Tokyo man, the court order Nova to pay him 310,000 yen.

Further discussion can be found