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 AB 1107 (Irwin) Page 2 of ? 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. AB 1107 (Irwin) Page 3 of ? 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 AB 1107 (Irwin) Page 4 of ? 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 AB 1107 (Irwin) Page 5 of ? 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. AB 1107 (Irwin) Page 6 of ? 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 AB 1107 (Irwin) Page 7 of ? 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 AB 1107 (Irwin) Page 8 of ? 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 AB 1107 (Irwin) Page 9 of ? 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 AB 1107 (Irwin) Page 10 of ? 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) **************