There was no mention of a deposit in either the sign-up page or the social media advertisement.
After signing up, the woman said she was invited to attend a consultation last month at the gym's Willis St premises.
At the consultation, she claimed a trainer outlined the six-week challenge's regimen of meal plans and workouts, which "all seemed really good", she said.
However, at the end of the consultation the trainer disclosed the challenge required a $500 deposit, only remediable if she lost either 11kg or 6 per cent body fat.
The woman, for whom "money is tight", said she would not have attended the consultation for the apparently free challenge had she known about the deposit.
"It was sprung on you ... it's clearly false advertising."
She said she was annoyed to have spent petrol money travelling to a consultation advertised under false pretences.
Consumer NZ head of research Jessica Wilson said the fact the gym had not mentioned the deposit in its advertising was "misleading" and risked a hefty fine.
"Companies can't advertise a 'free' service and then turn around and charge consumers a fee," Wilson said.
"Any trader that does so risks breaching the Fair Trading Act and a fine of up to $600,000.
"A service advertised as free has to be just that - free of any charge."
AM I FIT Dunedin owner and head trainer Mike Ivamy said that last week 59 people had paid the $500 deposit to sign up for the six-week challenge, which begins today.
The challenge was an American concept, run though a company called Gym Launch, he said.
Gym Launch's website claims to help "existing gym owners get their gyms to full capacity within 28 days".
"I've signed up to that just recently so this is my first campaign," Ivamy said.
He said he should have disclosed that a $500 deposit was required for the challenge, and apologised for any confusion the advertisement had caused.
"If people have been misled ... that was not my intention."
"People are hooked up on a little bit of wording which will be remedied next time."
He added that "all the cards were put on the table during the consultation" regarding the
$500 deposit, and applicants who did not have 11kg or 6 per cent body fat to lose were not accepted for the challenge.
"If a financial incentive is what drives people to make a positive change in their life then that's awesome.
"As the contract says, [the deposit] goes straight back to them once they hit their targets."
However, he conceded the sign-up page stating "this is the last day to register" and "only six spots left" was a template recommended by Gym Launch, and was inaccurate.
The before-and-after weight-loss profile images on the page did not depict AM I FIT clients, he said.
He also offered to pay back the woman's petrol money.
University of Otago Department of Human Nutrition Professor Jim Mann said shedding 11kg in six weeks was an achievable goal, and not necessarily unhealthy as long as those undertaking the challenge followed a balance diet combined with regular exercise.
"If you can lose it by getting a good exercise regime and good nutrition then I wouldn't think it's unreasonable."
If they were committed to the cause, Mann said he expected many in the group could end up getting their money back.
"If you've got a group of highly motivated people then quite a lot of them could do it."
However, he cautioned against using fad diets to shed weight, especially the ketogenic high-fat, low-carbohydrate diet which he was "strongly opposed to".
"It's un-physiological ... I've seen people whose cholesterol goes up astronomically."
