BILL NUMBER: SB 916 ENROLLED
BILL TEXT
PASSED THE SENATE JULY 21, 2001
PASSED THE ASSEMBLY JULY 16, 2001
AMENDED IN ASSEMBLY JULY 5, 2001
AMENDED IN ASSEMBLY JUNE 29, 2001
AMENDED IN SENATE MAY 31, 2001
AMENDED IN SENATE MAY 15, 2001
INTRODUCED BY Senator Ackerman
FEBRUARY 23, 2001
An act to amend Section 1812.101 of the Civil Code, relating to
discount buying organizations.
LEGISLATIVE COUNSEL'S DIGEST
SB 916, Ackerman. Discount buying organizations.
Existing law regulates membership contracts for discount buying
organizations, as defined. Certain discount buying organizations are
exempted from these provisions, including organizations that provide
a full refund of membership fees, as specified, maintain a bond of
$20,000, and comply with certain other requirements.
This bill would additionally exclude certain discount buying
organizations from these provisions if they establish, maintain, and
file with the Secretary of State specified information regarding an
escrow account in the amount of $50,000 used to provide members with
membership fee refunds, provide members with proof, in a specified
form, of the creation of the escrow account and membership refund
information, issue a refund within 10 days after the escrow trustee
receives a member's request, provide the Attorney General and every
prospective member with specified documents relating to membership
cancellation and refund terms, possess an unrevoked acknowledgment
from the Attorney General of compliance with the requirements of the
exclusion provisions, and comply with other specified requirements.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1812.101 of the Civil Code is amended to read:
1812.101. For the purpose of this title, the following
definitions shall be used:
(a) "Discount buying organization" means any person or persons,
corporation, unincorporated association, or other organization which,
for a consideration, provides or purports to provide its clients or
the clients or members of any other discount buying organization with
the ability to purchase goods or services at discount prices, except
that a discount buying organization does not include any of the
following:
(1) Any discount buying organization in which the total
consideration paid by each client or member in any manner whatsoever
for the purchase of discount buying services from the organization
that either:
(A) Does not exceed a one-time fee of fifty dollars ($50) or an
annual fee of twenty-five dollars ($25) to be paid on a yearly basis.
(B) Does not exceed a one-time or annual fee of fifty dollars
($50) and the organization provides a majority of the goods and
services through purchases by members who walk in to a fixed location
operated by the organization.
(2) Any discount buying organization in which the total
consideration paid by each client or member in any manner whatsoever
for the purchase of discount buying services from the organization
does not exceed a one-time or annual fee of one hundred dollars
($100) and the organization does all of the following in
subparagraphs (A) to (F), inclusive, and subject to subparagraph (G):
(A) Offers buying services to clients or members through toll-free
telephone access, computer access, or video shopping terminals.
(B) (i) During the first year of membership of each member, upon
the request of the member, provides a full refund of membership fees,
exclusive of any fees, however designated, not exceeding ten dollars
($10) in the aggregate, without conditions other than the surrender
or destruction of materials which allow the member to access or use
the service.
(ii) (I) The organization shall establish an escrow account of
fifty thousand dollars ($50,000) for the purpose of providing refunds
to members, pursuant to clause (i). If the fifty thousand dollars
($50,000) deposited in escrow is depleted during the first year of
the existence of the escrow account, the organization shall within
three business days of depletion replenish the account in the amount
of fifty thousand dollars ($50,000). For each calendar year
thereafter, the organization shall deposit in the account an amount
equal to refunds made from the account in the prior calendar year,
but not less than fifty thousand dollars ($50,000). At any time the
balance in the escrow account decreases to 50 percent of the amount
funded that year, the organization shall within three business days
replenish the account back to the balance required at the beginning
of that calendar year. The organization shall provide proof of the
establishment of the escrow account to the Secretary of State and
shall maintain records of all member requests for refunds and refunds
made pursuant to this clause. The records shall be made available
for review upon request by the Attorney General, any district
attorney, or the Department of Justice.
(II) The escrow account shall be established and maintained at a
federally insured bank or federally insured financial institution
independent of the organization with escrow instructions making the
bank or financial institution or an officer or employee thereof the
escrow trustee.
(III) Refunds shall be made from the escrow account to any member
who provides proof of membership while a California resident and
requests, in writing, a membership refund, and has not previously
been refunded his or her membership fee. The escrow trustee shall
issue the refund within 10 days of the date the written request is
received by the escrow trustee. In addition, requests for refunds
may be made directly to and paid directly by the organization.
(IV) Proof of creation of the escrow account, and membership
refund information, shall be provided to the members in the following
form:
"The ____ (organization) has established an escrow account for the
refund of membership fees at ____ (financial institution). Refunds
from the escrow account may, in addition to other remedies and
sources available to you, be obtained by mailing a written request
along with proof of membership to ____ (escrow trustee). This refund
request shall not affect or limit any other remedy at law available
to you."
(C) Provides at least 15 toll-free service lines to California
consumers devoted exclusively to customer service questions and
complaints.
(D) Maintains a bond which meets the requirements of Sections
1812.103 and 1812.104, except that the principal sum of the bond need
only be twenty thousand dollars ($20,000).
(E) (i) Possesses an unrevoked acknowledgment from the Attorney
General that the organization has provided to the Attorney General,
to the Attorney General's reasonable satisfaction, marketing
procedures and documents that clearly explain membership fee
cancellation and refund terms which include:
(I) The amount of the initial membership fee and how and when it
will be collected.
(II) If applicable, that a member must be advised, before any
charges are applied, that they need not provide billing information
in order to be charged a membership fee, in circumstances in which
the telemarketing firm has prior access to the member's billing
information.
(III) In the case of trial membership offers, the duration of the
trial period and that if the member does not cancel within the trial
period he or she will automatically be charged the membership fee.
(IV) Specifically how the member may cancel membership.
(V) The written disclosure, printed in capital letters with a
minimum 14-point boldface type, indicating who to contact, both
directly through the company and through the escrow account, for a
refund.
(VI) The written disclosure made at the time of solicitation and
at the time an enrollment package is sent to consumers.
(ii) When an organization provides documentation that clearly
explains membership fee cancellation and refund terms to the Attorney
General's reasonable satisfaction, which includes the information
required by subclauses (I) to (VI), inclusive, of clause (i) of
subparagraph (E), the Attorney General shall issue a revocable
acknowledgment to the organization for it to obtain this exception.
The acknowledgment issued by the Attorney General is not evidence of
the adequacy or accuracy of the organization's actual disclosures and
representations provided to consumers. No organization in any
marketing to consumers may make any reference to an acknowledgment
issued by the Attorney General under this clause.
(F) Provides the disclosures listed in subclauses (I) to (VI),
inclusive, of clause (i) of subparagraph (E) to every prospective
member.
(G) The exemption is null and void if the organization fails to
comply with the conditions set forth in this section or if the
Attorney General's office revokes the exemption due to a organization
not being in full compliance with all of the provisions of this
section.
(3) Any discount buying organization in which persons receive
discount buying services incidentally as part of a package of
services provided to or available to the individual on account of his
or her membership in the organization, which is not organized for
the profit of any person or organization, and which does not have as
one of its primary purposes or businesses, the provision of discount
buying services.
(4) Any person, corporation, unincorporated association, or other
organization, which, for a consideration collected from another
entity, provides or purports to provide the clients of the other
entity with the ability to purchase goods or services at discount
prices, if the clients of the other entity do not order from, or pay
any money to, that person, corporation, unincorporated association,
or other organization; however, the entity, from which the customer
purchases the right to obtain goods or services at discount prices,
shall comply with the requirements of this title.
(b) "Contract for discount buying services" means a contract
between one party (hereinafter referred to as the "buyer") who is
purchasing the service for personal or family use, and a discount
buying organization, whereby the buyer for a consideration receives
the right to obtain goods or services from the discount buying
organization, or to utilize the discount buying organization services
in obtaining goods and services, at discount prices.
(c) "Discount prices" means prices which are represented to be
lower on most or all offered goods or services than those generally
charged for the items in the locality in which the representation is
made.
This definition is not intended to affect the degree of savings
which must be offered on an item or selection of items in order to
truthfully and without misleading consumers represent an item,
selection of items, or entire store as being "discount" or
"discounted."