Nova barred from making long contracts

The Economy, Trade and Industry Ministry said Wednesday it ordered Nova Corp., the nation’s largest English language school chain, to suspend for six months its recruitment of customers for new contracts of more than one year or 70 lesson hours, starting Thursday.

According to sources, the ministry has concluded Nova’s practice of telling prospective customers they can reserve classes at any time they choose, even though classes at certain times on some days are difficult to book, constitutes giving a “false account” of the company’s services and violates the Specified Commercial Transaction Law.

The Osaka-based company, which gained popularity with its “ekimae ryugaku” model of opening schools near stations, became the first English language school operator to receive a ministry order to suspend business operations.

In recent years, consumer affairs centers have been swamped with complaints of Nova’s practices with some claiming, for example, the company uses an accounting method disadvantageous to customers who cancel their contracts halfway through.

The ministry and the Tokyo metropolitan government launched an investigation into Nova in February, including inspecting the Osaka headquarters, its main Tokyo office and branches in Kanagawa Prefecture.

Under the ministry’s administrative sanction, Nova will be barred from carrying out a number of actions, including soliciting prospective customers for contracts of more than one year, for six months from today, the sources said. But those who already have signed such long-term contracts can continue attending classes. The sanction does not apply to short-term contracts, they added.

“We take the ministry’s decision seriously and offer sincere apology to the people concerned,” Nova President Nozomu Sahashi said at a press conference held in Osaka on Wednesday afternoon.

“We’ll do our best to take care of students and provide them with lessons without any problems,” he added.

Nova introduced a discount system in which students can take classes based on the number of points they purchased. The more points they buy at once, the bigger the discount. To take advantage of this system, many customers signed contracts with points valid for three years.

However, some customers reportedly ended up cancelling their contracts midway through, complaining it was difficult to make reservations and that they could not use up their points before they expired.

Industry sources said foreign language schools usually set contract periods of less than one year to avoid trouble over midterm cancellations.

As of September, Nova operated 926 branches and had about 450,000 students nationwide. Average sales per Nova branch reached 85.68 million yen in fiscal 2005, about 4.9 times higher than the average for its rivals.