BILL ANALYSIS Ó SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Jerry Hill, Chair 2015 - 2016 Regular Bill No: AB 2106 Hearing Date: June 6, 2016 ----------------------------------------------------------------- |Author: |Irwin | |----------+------------------------------------------------------| |Version: |May 31, 2016 | ----------------------------------------------------------------- ---------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ---------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Sarah Mason | |: | | ----------------------------------------------------------------- Subject: Sellers of travel: registration SUMMARY: Makes various changes to the Sellers of Travel law. Existing law: 1) Establishes the Sellers of Travel law (Law) which provides a comprehensive scheme for the regulation of sellers of travel (SOT), as defined, and requires a seller of travel, unless exempted, to register with the Attorney General (AG) and to comply with various requirements. (Business and Professions Code (BPC) § 17550 et. seq.) 2) Defines a SOT as a person who sells, provides, furnishes, contracts for, arranges, or advertises that he or she can or may arrange, or has arranged, at wholesale or retail either of the following: air or sea transportation either separately or in conjunction with other travel services, or 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 three hundred dollars ($300). (BPC § 17550.1(a)) 3) Excludes from the definition of a SOT the following: an air carrier; an ocean carrier; a hotel, motel, or similar lodging establishment that arranges for transportation for its registered guests; a motor club; or a motor or rail carrier AB 2106 (Irwin) Page 2 of ? or water vessel operator operating from a state, federal, or other governmental entity. (BPC § 17550.1(b)) 4) Requires a SOT to register with the Attorney General's office (AG) and file certain information as part of registration, including the name and contact information of individuals a SOT contracts with. Requires the AG to suspend a SOT's registration for failure to make payment to the Travel Consumer Restitution Fund (TCRF) or writes a registration fee check that is not honored. Authorizes the AG to contract for the processing of SOT registrations. Exempts individuals that conduct their activities in accordance with specified procedures and disclosures. (BPC §§ 17550.20, 17550.21) 5) Establishes the Travel Consumer Restitution Corporation (TCRC) which creates the TCRF as a mechanism for an aggrieved passenger to be reimbursed when a SOT fails to provide for travel or in the event that a SOT becomes insolvent. (BPC § 17550.38) This bill: 1) Specifies that a registration shall not be issued, renewed, or approved until outstanding TCRF assessments are paid. 2) Requires a SOT to provide the file number issued by the Secretary of State to the AG and specifies that failure to provide this information is grounds for registration suspension. 3) Exempts single-member limited liability corporations and "S" corporations whose member is a natural person that conduct their activities in accordance with specified procedures and disclosures from registration. 4) Requires a SOT to also provide the AG the name and contact information for individuals in a single-member limited liability corporation or "S" corporation who the SOT contracts with, as well as the file number issued by the Secretary of State to the SOT, in addition to requirements in AB 2106 (Irwin) Page 3 of ? Item #4 above. 5) Prohibits the issuance, approval, or renewal of registration until the seller of travel has paid any outstanding assessments due to the Travel Consumer Restitution Corporation. 6) Allows refund payments to persons aggrieved by sellers of travel who had been paid-up participants at any time during the 18 months previous to the time of sale. 7) Declares that any person aggrieved who files a claim for payment from the fund would waive his or her right to bring an action at law or equity against the seller of travel as to that claim, as specified, unless the seller of travel had not been a paid-up participant at any time during the 18 months previous to the time of sale. 8) Makes technical changes. FISCAL EFFECT: This bill is keyed fiscal by Legislative Counsel. According to the Assembly Committee on Appropriations analysis dated May 4, 2016, the bill will result in minor and absorbable enforcement costs to the AG. COMMENTS: 1. Purpose. This California Coalition of Travel Organizations is the Sponsor of this bill. According to the Author, the goals of the bill are to ensure that SOTs comply with the requirements under current law that they obtain a California State Tax Identification number issued by the SOS; to ensure that a consumer's ability to recover from the TCRF does not depend on whether the SOT was late in paying its assessment to the TCRF by allowing consumers to recover from the fund for up to 18 months and; to ensure that independent agents AB 2106 (Irwin) Page 4 of ? may be a business entity and do not have to be a natural person, reflecting the common practice of independent agents to organize as a single member limited liability corporation or S-corporation. 2. Sellers of Travel Law. The Law was enacted by SB 918 (Chapter 1123, Statutes of 1994), authored by then-Assemblymember Jackie Speier and sponsored by the California Coalition of Travel Organizations working in cooperation with the AG's office. The Law requires all sellers of travel to register with the AG's office, pay an annual fee of $100 to fund the program and pay annual assessments into a self-sustaining restitution fund (the TCRF). The Law provides specific protections to consumers who purchase sea or air transportation either singly or in conjunction with other travel services, such as lodging and car rentals. The Law applies to all sellers located in California, as well as those who sell or offer to sell from locations outside the state to persons located in California and applies to both retail and wholesale transactions, covering sales by tour operators, consolidators, and wholesalers. A seller who only offers lodging, bus, or train tours without also offering air or sea transportation is not covered by the Law. Lodging establishments that book travel for their guests and accept no money for doing so, along with airlines, and cruise lines are also not covered by this law. The Law provides several layers of protections for consumers, including: a. Disclosure and identification of the seller. Among other things, SOTs must disclose business addresses, fictitious business names, identifying information of principals and owners, any relationship with airlines, and the location of a trust account or information about a surety bond. The registration number, displayed in all advertising and offers to sell, is a means of identifying the businesses in the event of claims or complaints and does not indicate any review or approval of the business by the AG's office. Therefore, so long as the seller discloses the necessary information in its application and pays the appropriate fees, the registration will be approved and a registration number issued. AB 2106 (Irwin) Page 5 of ? b. Financial protections. Some SOTs must deposit payments into a trust account or obtain a surety bond on behalf of their customers. In addition, sellers receiving payment from a passenger may not use that money for any other purpose (i.e., to buy travel on behalf of another passenger, pay rent or business overhead, or any personal use) until it has delivered the purchased goods and services. c. Restitution fund. The law provides for a private non-profit corporation, the TCRC, which administers the TCRF. If the purchaser is located in California and the purchase is from a registered seller of travel whose principal place of business is also in California, and the purchaser does not receive what he or she contracted to purchase, the purchaser can file a claim with the TCRC. Registered California sellers and out-of-state sellers whose stock is nationally traded are required to pay annual assessments to the TCRC. d. Written disclosures. Prior to, or at the time of, receiving any payment, a SOT must provide the purchaser 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 any balance due, whether it has a trust account or surety bond, whether the payment is protected by the TCRF, and how to make a claim of the TCRC. In addition to those primary purposes highlighted above, the Law also provides for a number of "guarantees." In the event that there is a cancellation, the purchaser is entitled to receive a prompt and automatic refund. If there is a material misrepresentation by the seller, the law likewise requires a refund. Finally, the law provides that once the seller has received the purchaser's full payment, the purchased tickets must be promptly delivered. 1. Arguments in Support. The Sponsor, the California Coalition AB 2106 (Irwin) Page 6 of ? of Travel Organizations (CCTO), writes in support of this bill, noting that the bill updates current law in order to enhance the consumer protections and the efficiency of the Law. According to CCTO, some SOTS that are currently in compliance with requirements that SOTs obtain a California State Tax Identification number issued by the Secretary of State have identified businesses that are not in compliance. Ensuring that a consumer's ability to recover from the Travel Consumer Restitution Fund [TCRF] does not depend on whether the seller of travel was late in paying its assessment to the TRCF. 2. Author's Amendment. The Author is concerned that some SOTs may not be complying with requirements businesses in California are subject to, outside of the Law. According to the Author, authorizing the AG to withhold a SOT from being assigned a registration number when the SOT is out of compliance with other laws, such as those requiring certain businesses to register operations with the Secretary of State, will ensure consistency among state agencies and protect consumers. The Author believes that it is important that travel businesses are not allowed to avoid compliance with one set of laws, yet be allowed to register as a SOT and present themselves as compliant with California law. As such, the bill includes a requirement that a SOT provide "the file number issued by the Secretary of State" to the AG and specifies that failure to provide this information is grounds for registration suspension. The terminology used in the bill currently is not specific, nor clear to ensure that SOTs are providing the information the Author intends for them to provide to the AG in order to be registered. In response, the Author has agreed to amend the bill according to the following: On page 9, in line 8, strike "file number issued by the Secretary of State" and replace with " seven digit California corporation number assigned by the Secretary of State or the Franchise Tax Board ". NOTE : Double-referral to the Senate Committee on Judiciary. AB 2106 (Irwin) Page 7 of ? SUPPORT AND OPPOSITION: Support: California Coalition of Travel Organizations (Sponsor) Opposition: None on file as of June 1, 2016. -- END --