I would absolutely switch studios. What they are doing is legal, and unfortunately common in some places. Any franchise studio will charge more because they have to cover franchise fees. Basically you are paying for the name.

I'm sure there are other studios in your area with experienced and talented teachers. Most studios host an open to the public dance or will give you a free lesson to try them out.

Also If and when you do decide to switch, I would write a polite letter to the studio owner and send a copy to the President of Arthur Murray, explaing what made you feel uncomfortable and why you left. These business practices will stay in tact, because franchise owners believe they "really work" and don't want to believe that they are driving people out the door.