BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 1107 (Irwin)
Version: April 8, 2015
Hearing Date: July 7, 2015
Fiscal: Yes
Urgency: No
BCP
SUBJECT
Sellers of travel: regulation
DESCRIPTION
Existing law regulates sellers of travel, as defined, and
requires their registration with the Attorney General. Existing
law requires a seller of travel to deposit sums received from
any person or entity into a trust account, as specified, and
requires the seller of travel to file with the Attorney General
an agreement allowing the Attorney General, a district attorney,
or their representative to examine and obtain copies of all
business records, including, but not limited to, those related
to the trust account.
This bill would require a seller of travel to maintain all
business records for a minimum period of three years. The bill
would also authorize the Attorney General to maintain an action
for recovery of examination costs and expenses in any court of
competent jurisdiction, as specified. The bill would require
the seller of travel to pay for costs and expenses for any
examination if the Attorney General bills the seller of travel,
provided that the examination shows that the seller of travel
has failed to comply with certain requirements.
This bill would require assessments from the Travel Consumer
Restitution Corporation to be due 45 days from the date the bill
for that assessment is sent to the seller of travel.
BACKGROUND
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Under existing law, the Seller of Travel Act (Act), all sellers
of travel must register with the Attorney General's (AG's)
Office and display that registration number on all advertising.
The AG notes that "[w]hile not assuring that a company is
reputable, a valid registration signals that the seller of
travel has at least followed the law to be registered." (Office
of Atty. Gen., SELLER OF TRAVEL (https://oag.ca.gov/travel [as
of June 30, 2015].) Furthermore, the AG provides the following
information to consumers about the protections provided by the
Act:
Registration - All sellers of travel must register with the
Attorney General's Office, Seller of Travel Program, before
they can operate lawfully within the State of California or
market to persons, businesses, or retail vendors located
within the state. Registration requires, among other
things, disclosure by the seller of business addresses,
fictitious business names (dba's) used, identifying
information as to principals and owners, relationship with
the airlines, the location of a trust account or information
about a surety bond (if one of these protections is
required). Registration is not the same as licensing which
usually involves some review and approval. So long as the
seller discloses the necessary information in its
application, a registration number will be issued to the
applicant. However, in the event a seller does not provide
the tickets or lodging, and the purchaser is having
difficulty locating that seller, information in the
registration file will assist in determining who actually
made the sale. One of the purposes of registration is to
have sufficient information about both reputable and crooked
sellers to be able to locate them should anything go wrong.
The registration number must be clearly and conspicuously
displayed by the seller of travel on all advertising
materials including newspaper advertisements, flyers,
mailers, television and radio broadcasts, faxes, and
websites.
When first contacting a seller, ask for the registration
number and expiration date of that seller's current
registration. Registration is good for one year and must be
renewed annually. Do not deal with any seller who does not
disclose its registration number in advertising materials,
or who declines to tell you the number and expiration date.
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While registration does not mean that the seller is
reputable, you should avoid any seller who has not taken
those simple safeguards required by law to protect your
payments, as revealed in its application for registration to
the Attorney General's Office.
Keeping payment in trust - Some sellers of travel are
required to deposit all payments received into a trust
account or to obtain a surety bond on behalf of their
customers. Others are not required to maintain either a
trust account or post a bond. All sellers, however, who
receive a payment from one passenger may not use that money
to buy travel on behalf of another passenger or to pay for
rent, overhead, or any personal use, until such time as it
has delivered to you the goods and services that you have
purchased.
If a seller tells you that it is not able to obtain travel
that you have purchased because your payment has been spent
on some other trip, or for business or personal purposes,
immediately contact the police, your local District
Attorney, or the Attorney General's office. Such taking of
your payment may be prosecuted as a felony.
Restitution Fund - If you are located in California and
purchase from a registered seller of travel whose principal
place of business is also in California, and you do not
receive what you have paid for, you can file a claim with
the Travel Consumer Restitution Corporation ("TCRC"), which
operates the Travel Consumer Restitution Fund. Registered
California sellers and out-of-state sellers whose stock is
nationally traded are required to pay an annual assessment
to TCRC. If a seller is not registered, it cannot be a
participant in the fund.
A person in California who purchases from an unregistered
seller will not be able to obtain restitution from TCRC
should anything go wrong. The restitution fund was created
by law to pay out on claims arising from the seller's
failure to provide the contracted for goods and services
owing to its own wrongful taking of your payment, bankruptcy
filing, or closure of business. It does not cover the
cessation of an air or sea carrier or a failure by another
registered seller to which your seller has forwarded your
funds. For more information about the Restitution Fund and
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how to make a claim, see Consumer Refunds.
Automatic Refund - In the event that there is a cancellation
not in accord with your contract, you are entitled to
receive a prompt and automatic refund. You do not have to
request a refund. The obligation is on the seller to make
one. Under law, any "material misrepresentation" by the
seller requires that a refund be issued.
Written Disclosures - Prior to or at the time of receiving
any payment, even a partial one, a seller of travel must
provide you with various written disclosures including its
name, business address and telephone number, an itinerary, a
statement about its cancellation policy, the total amount to
be paid, the amount paid to date, the date of any future
payment, the purpose of the payment made, an itemized
statement of the balance due, if any, whether it has a trust
account or surety bond, whether your payment is protected by
the Restitution Fund, and how to make a claim to TCRC. If a
seller fails to provide you with its cancellation policy in
writing, it cannot later impose penalties in the event that
you cancel.
Quick Ticketing - Once full payment has been received by the
seller, it must promptly deliver to you any tickets that you
purchased.
(Office of Atty. Gen., Frequently Asked Questions -
Consumers Travel (https://oag.ca.gov/travel/faqs) [as of
June 30, 2015]
This bill seeks to update the Seller of Travel law by: (1)
authorizing the Travel Consumer Restitution Corporation to
electronically bill sellers of travel; (2) requiring business
records to be retained for at least 3 years for auditing
purposes; and (3) allowing the AG to recover its costs and
expenses, including attorney's fees, for an examination.
CHANGES TO EXISTING LAW
1. Existing law , generally regulates sellers of travel, and
requires a seller of travel, unless exempted, to register with
the Attorney General (AG) and to comply with various
requirements. (Bus. & Prof. Code Sec. 17550 et seq.)
Existing law defines a "seller of travel" to mean a person who
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sells, provides, furnishes, contracts for, arranges, or
advertises that he or she can or may arrange, or has arranges,
wholesale or retail, either of the following: (1) air or sea
transportation either separately or in conjunction with other
travel services; or (2) land or water vessel transportation,
other than sea carriage, either separately or in conjunction
with other travel services if the total charge to the
passenger exceeds $300. (Bus. & Prof. Sec. 17550.1.)
Existing law requires a seller of travel to deposit all sums
received from any person or entity for air or sea
transportation, or for any travel services, directly into a
trust account in a federally insured bank, savings and loan
association, or credit union. (Bus. & Prof. Code Sec.
17550.15(b).) Existing law prohibits a seller of travel from
in any manner, encumbering the corpus of the trust account or
withdrawing money, except as provided. (Bus. & Prof. Code
Sec. 17550.15 (c).)
Existing law requires the seller of travel to serve as trustee
of the trust accounts, as specified, and, except as otherwise
provided, requires all trust accounts to be maintained at a
branch of a federally insured bank, savings and loan
association, or credit union. (Bus. & Prof. Code Sec.
17550.15(e), (f)(1).)
Existing law requires a seller of travel to file with the AG
an irrevocable agreement in writing allowing the AG, a
district attorney, or their representatives, upon written
request, to examine and obtain copies of all business records,
including, but not limited to, those related to the trust
account wherever those records may be, and including, but not
limited to, those records relating to any travel business
account, or any account used for any travel business
transaction, or account to which trust funds have been
deposited. Existing law requires the statement to indicate
that the authorization remains in effect as long as the seller
of travel, financial institution, or other custodian of
records retains records. (Bus. & Prof. Code Sec.
17550.15(f)(2).)
This bill would require a seller of travel to maintain all
business records described above for a minimum of three years.
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This bill would allow the AG to maintain an action for
recovery of examination costs and expenses in any court of
competent jurisdiction, and may recover his or her reasonable
attorney's fees as an item of costs, as specified.
This bill would provide that costs and expenses for
examination shall be paid for by the seller of travel if the
AG bills the seller of travel for those costs and expenses,
provided that the examination shows that the seller of travel
has failed to comply with specified requirements.
2. Existing law establishes the Travel Consumer Restitution
Corporation (TCRC), which creates the Travel Consumer
Restitution Fund as a mechanism for an aggrieved passenger to
be reimbursed when a seller of travel fails to provide for
travel or in the event that a seller of travel becomes
insolvent. (Bus. & Prof. Code Sec. 17550.38.)
Existing law provides that, in addition to other specified
assessments, the TCRC shall bill and collect from each
participant an annual assessment that in the aggregate
consists of assessments for the operations fund and the
restitution fund. (Bus. & Prof. Code Sec. 17550.44(a).)
Existing law provides that if, on May 1 or October 15 of any
year, the balance in the restitution fund is less than
$900,000, the corporation shall make an emergency assessment
of participants, not more than twice per year, up to a maximum
amount of $150 per year for each location in the state from
which the participant does business, for deposit in the trust
account to return the level of restitution fund to an expected
balance of $1,600,000. (Bus. & Prof. Code Sec. 17550.44(d).)
Existing law provides that, in addition to the above
assessments, if at any time during the fiscal year the board
of directors of the TCRC determines that the operations fund
will be insufficient to pay the costs of operations and
administration for the current or next fiscal year, the
corporation shall do either of the following: (1) make an
emergency assessment, as specified; or (2) transfer any or all
interest earned on the Restitution Fund to the Operations
Fund, as specified. (Bus. & Prof. Code Sec. 17550.44(e).)
Existing law provides that the above assessments shall be due
45 days from the date the bill for that assessment is mailed
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by the TCRC. (Bus. & Prof. Code Sec. 17550.44(f).)
This bill would, instead, provide that the assessments shall
be due 45 days from the date the bill is sent to the seller of
travel.
COMMENT
1. Stated need for the bill
According to the author:
The Seller of Travel (SOT) law was enacted 25 years ago to
require that sellers of travel register with the Attorney
General's Office, display the registration number on all
advertising, and support the state's unique Travel Consumer
Restitution Fund (TCR) that is available to California consumers
for refunds for travel services that failed to be delivered as
promised, i.e. fails to deliver the travel documents, becomes
insolvent, or refuses to refund a client.
AB 1107 provides updates to the existing Seller of Travel (SOT)
law in the Business and Professions Code in order to enhance the
consumer protections and the efficiency of the law. These
include:
Authorizing electronic billing by the travel
Consumer Restitution Corporation (TCRC) of sellers of
travel,
Requiring that SOTs retain at least 3 years of
business records for auditing purposes, and
Allowing the Attorney General's office to recover
its costs from an audit when a violation has been
determined.
2. Attorney General (AG) enforcement and SOT business record
retention
Under existing law, sellers of travel must generally deposit all
sums received from any person into a trust account. Sellers of
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travel must also file an irrevocable agreement with the AG
allowing the AG, district attorney, or their representatives, to
examine and obtain copies of all business records, including
those related to the trust account. This bill would clarify
that those business records must be maintained for a minimum
period of three years. As existing law does not specify a
retention period, that three-year minimum retention period would
provide some level of certainty for sellers of travel as to how
long business records should be retained.
In support of the proposed change, the author asserts that
existing law "[r]ecord retention would be very helpful to the
Attorney General's office [who] has responsibility for the
oversight of the [] law including audits and investigations."
The California Coalition of Travel Organizations (CCTO, sponsor,
further notes that the three-year period would be sufficient for
most state auditing cycles, and, that the current "lack of a
retention requirement can impact the effectiveness of any audit
or examination."
Related to the issue of retention of business records, and the
AG's examination of those records, this bill would also allow
the AG to maintain an action for recovery of examination costs
and expenses, and provide that the AG may recover his or her
reasonable costs and attorney's fees as an item of costs.
While, as a general rule, each side in an action is responsible
for paying his or her own attorney's fees, as a matter of
policy, that obligation can be shifted by statute. In this
case, the bill would shift the obligation to the seller of
travel if the AG elected to bring an action to recover their
examination costs and expenses. The CCTO asserts that this
provision would "reduce operating costs of the [AG's sellers of
travel] unit at the office," and author further states:
While the [] law provides that the TCRC shall recover costs and
expenses for examinations or investigations when it participates
in an investigation (Business and Professions Code Section
17550.33), there is no corresponding provision allowing the
Attorney General's office to recover costs for its examinations
or audits. In other contests, these audits or examination costs
are usually chargeable to the examinee when a violation is
found.
This would be remedied by . . . allowing the Attorney
General's Office to recover costs and expenses from audits
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or examinations whenever a violation is found. This revision
would assist in the funding of the costs of the AG by
providing authority for the AG to recover its costs when an
audit finds that the SOT Law has been violated.
Accordingly, the bill specifically requires the seller of travel
to pay the costs and expenses for an examination if the AG bills
the seller for those costs and expenses, and, the examination
shows the seller failed to comply with any of the requirements,
as specified.
3. Authorizing electronic billing
Under existing law, the TCRC assesses each registered seller of
travel for both its operations and restitution funds. A seller
of travel must pay an assessment 45 days from the date the bill
for that assessment is mailed by the TCRC. In order to allow
for electronic billing, this bill would, instead, require the
assessment to be paid 45 days from the date the bill for that
assessment is sent to the seller of travel. The California
Coalition of Travel Organizations states that "[t]his provision
would provide process efficiencies and eases the burden on
sellers of travel by authorizing the TCRC to bill the
participants electronically to provide funds in the Travel
Consumer Restitution Fund [TCRF]." The author further asserts:
The current [seller of travel] law (Business and Professions
Code Section 17550 et seq.), enacted in 1995 and prior to the
advancement of Internet and electronic transactions, required
the Travel Consumer Restitution Corporation (TCRC) to bill
sellers of travel by mail. . . . It would be more efficient for
billings to be made electronically.
Support : None Known
Opposition : None Known
HISTORY
Source : California Coalition of Travel Organizations
Related Pending Legislation : None Known
Prior Legislation : None Known
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Prior Vote :
Senate Business, Professions and Economic Development Committee
(Ayes 9, Noes 0)
Assembly Floor (Ayes 78, Noes 0)
Assembly Appropriations Committee (Ayes 17, Noes 0)
Assembly Business and Professions Committee (Ayes 14, Noes 0)
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