When Tang Xiaoxin signed up her daughter for painting classes in June, it seemed like a good deal. The training center was based inside a busy mall near her home in Shanghai, and seemed to be popular.

Even better, it offered special discounts to parents who prepaid for a course of lessons. Tang handed over 10,000 yuan ($1,500) without a second thought.

A month later, the business vanished.

Dozens of parents and children arrived for class one morning to find the center empty. Its owner could not be contacted. The company that owned the training center franchise refused to help, saying it was not responsible for the actions of its franchisees. Tang never got her money back.

“There was no sign it was going to shut down at all,” she told Sixth Tone. “They were still enrolling students, and then suddenly closed, leaving the parents completely unprepared.”

The parents had become the latest victims of a scam that is becoming worryingly common in China: businesses suddenly disappearing without a trace, leaving their customers out of pocket.

Earlier this week, China’s top consumer rights watchdog warned consumers to exercise greater caution when making upfront payments at gyms, beauty salons, tuition centers, and other service businesses, as it had noticed a troubling rise in companies exploiting these systems to defraud customers.

Customers losing out when businesses abruptly shut down has been an issue for years. But things are getting much worse due to the emergence of a new breed of fixers known as “professional store closers,” the China Consumers Association said.

These shady middlemen specialize in helping the owners of struggling businesses shut up shop without paying their debts — and in some cases, even abscond with thousands of dollars of their customers’ money.

In the weeks before the business folds, the store closers often disguise the fact that the company is struggling. Sometimes, they will even launch a final round of discounts to encourage more customers to make large prepayments, according to the China Consumers Association.

Then, the store closers transfer the funds and change the company’s legal representative to someone without the financial means to settle the company’s debts. This allows the original owner to evade paying customers refunds and other damages if they take legal action.

When the business is finally shuttered, the original owner disappears and the store closers take responsibility for handling any customer complaints, lawsuits, and other disputes.

According to the China Consumers Association, these scams are particularly common in the early childhood education sector.

One prominent example occurred earlier this week, when a Beijing outlet of the well-known private kindergarten chain RYB Education suddenly shut down, leaving hundreds of parents with losses worth hundreds of thousands of yuan.

Many similar incidents have attracted media attention in recent years, often involving well-known chains. In the gym industry, outlets from beleaguered franchises including Tera Wellness, Fine Yoga, and Justin & Julie have undergone messy closures, leaving customers struggling to get refunds.

Facing rising numbers of complaints, the China Consumers Association advised customers to be careful when prepaying for any service, especially when businesses offer promotions to encourage large upfront payments. It added that consumers should make sure to keep any invoices and receipts when making a purchase.

Consumers typically report such cases to the police or file lawsuits. To better safeguard consumers' rights, authorities have been working to improve legal procedures. In June, China’s Supreme People’s Court began seeking public opinions on new guidelines for handling prepaid service disputes. Under these guidelines, businesses that fail to deliver agreed-upon goods or services, or shut down after collecting upfront payments, would be held liable for fraud.

Li Xuyue, an office worker based in Shanghai, said she had learned this lesson the hard way, after losing 500 yuan to a nail salon during her college days.

Purchasing a long-term membership card on the urging of the salon’s staff, Li was left in the lurch when the business shut down just a few months later.

“This experience made me stop prepaying for services,” Li told Sixth Tone. “I now prefer to make the shortest-term payments possible, so that any losses are manageable.”

(Header image: A woman takes photos of an early learning center that shut down in Beijing, Aug. 14, 2020. VCG)