Two Tangquan Liangzi Franchise Outlets Close in Beijing: Transferring Prepaid Balances Is Not a Refund

The recent closure of two Tangquan Liangzi franchise outlets in Beijing has raised questions about what happens to customers’ prepaid card balances. A report published by the Jiangsu Procuratorate website on 2 November put the outstanding balances at around RMB 3 million, according to preliminary estimates. The dispute poses a practical question for those operating in, or considering entry into, China’s franchise market: behind a shared brand name, who is responsible for issuing cards, collecting payments and providing refunds after an outlet closes?

Replacement outlets offer two options for outstanding balances

According to the report, some customers still had several thousand yuan on their cards, while others had only recently bought cards and had made little use of them. The replacement outlets offered two options: transfer the existing balance to a new card after topping up by an equal amount, or use the old balance to cover half the cost of each visit and pay the remainder in cash.

Both arrangements require further spending rather than directly refunding the remaining funds. Whether consumers accept either offer is a separate question from their right to seek a refund from the original operator.

Closure does not automatically extinguish existing claims

Speaking to Legal Daily, Cheng Ke, deputy director of the Centre for Cultural Rule of Law Studies at the Communication University of China, said that if the old and new outlets genuinely have no legal connection, the new outlets have no obligation to settle the old outlets’ debts. Equally, consumers’ claims against the old outlets do not disappear when they close.

Li Xiaosong, director of Beijing Yongwen Law Firm, likewise said that neither option constituted a legally prescribed debt settlement arrangement. He noted that the party to the original prepaid card contract was the franchise outlet that had closed. Consumers could therefore demand repayment of the balance from the original operator and were entitled to reject the replacement outlet’s offer.

Cheng warned that the matching top-up option adds to the risk: customers would be committing an equal amount of fresh money before recovery of their existing balance had been secured. Those choosing to offset part of each purchase should also note that amounts already redeemed cannot be recovered again from the original outlet.

The brand and the card issuer must be distinguished

The experts interviewed noted that consumers often buy prepaid cards on the strength of a brand name, but the actual issuer may be an independent franchisee rather than the brand’s head office or a branch company. This distinction creates practical challenges in aligning prepaid funds management with franchise operations.

The experts’ discussion covered payment collection accounts, regulatory filings and the implementation of arrangements for safeguarding funds. It should not, however, be taken as evidence that the outlets concerned had committed every related regulatory breach. Nor can the head office’s liability be determined solely by a shared brand name or a description of the outlets as ‘independently operated’.

Management recommendations are not new rules already in force

Li recommended more detailed obligations for head offices overseeing franchisees’ prepaid cards, prominent disclosure of the actual card issuer, and better links between franchise registration and prepaid card filing data. These were proposals for improvement from an interviewed expert, not new rules brought into force by the report.

For the franchise sector, the practical lesson is to set out clearly who issues the cards, which account receives payments, how outstanding balances will be taken over, and what refund rules apply when an outlet exits. Before accepting a card transfer, consumers should retain their original contracts and proof of payment, and check the terms governing redemption, refunds and breach of contract for both old and new balances. An offer conditional on further spending should not be mistaken for an unconditional settlement.