BILL ANALYSIS
SB 916
Page 1
SENATE THIRD READING
SB 916 (Ackerman)
As Amended July 5, 2001
Majority vote
SENATE VOTE :40-0
BUSINESS AND PROFESSIONS 12-0
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|Ayes:|Correa, John Campbell, | | |
| |Bogh, Cedillo, Chavez, | | |
| |Corbett, Kelley, Koretz, | | |
| |Leach, Matthews, Nation, | | |
| |Wesson | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Allows publicly traded discount buying organizations
(DBOs), such as direct telemarketing firms, to recognize income
from first-year membership fees, for accounting purposes and
compliance with rules of the Securities and Exchange Commission
(SEC). Specifically, this bill :
1)Requires DBOs to establish an escrow account of $50,000 with a
federally insured bank or financial institution to issue
refunds of membership fees at the request of the member, and
to replenish the escrow account within three business days of
the depletion of the initial $50,000 during the first year of
operation. Requires DBOs, for each calendar year thereafter,
to fund the escrow account at the level of actual claims for
the prior calendar year, but not less than $50,000, and
replenish this account within three business days whenever the
fund is depleted to 50% of its original funding for that year.
2)Requires DBOs to provide proof of the establishment of the
escrow account to the Secretary of State and maintain records
of all requests for refunds and actual refunds.
3)Requires DBOs to provide a refund from the escrow account to
any member who requests a membership refund in writing, and
has not previously received a refund. Requires the escrow
trustee to issue the refund within 10 days of the date that
the written request for a refund is received.
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4)Requires that DBOs provide at least 15 toll-free service lines
to California consumers devoted exclusively to customer
service questions and complaints.
5)Requires that DBOs provide conspicuous written disclosures of
the right of cancellation and refund procedures.
6)Requires that DBOs advise customers, before any charges are
applied, that they need not provide billing information in
order to be charged a membership fee, in circumstances where
the DBO has prior access to the customer's billing
information.
7)Requires that DBOs obtain the Attorney General's (AG)
satisfaction with regard to the membership cancellation and
refund terms.
8)Specifies that the various consumer protections in this bill
apply to all entities proposing to utilize the exception to
the definition of "discount buying organization."
9)States that failure to comply with these requirements would be
cause for the AG to require the entity to obtain written
contracts from members and comply with other specified
provisions of the discount buying law.
EXISTING LAW :
1)Defines "discount buying organization" (DBO) as a person or
entity that, for consideration, provides consumers with the
ability to purchase goods and services at discount prices.
2)Allows consumers who are injured by entities subject to the
discount buying statute to recover treble damages plus
attorney's fees and provides misdemeanor penalties for certain
violations.
3)Exempts a number of organizations from the definition of a DBO
under specified circumstances, such as the provisions that an
organization provide an unconditional full refund of
membership fees and maintain a $20,000 bond.
FISCAL EFFECT : Unknown
COMMENTS : This bill deals with a problem for publicly traded
SB 916
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DBOs that operate under the "unconditional refund" exemption for
reporting income derived from membership fees. SEC guidelines
require exclusion of those fees from revenue recognition until
the refund period expires. This bill would permit publicly
traded DBOs to declare more of their membership fee income by
qualifying for an alternative exemption from the Discount Buying
Act, when it establishes an escrow account to service "no
questions asked" refunds.
This bill is the product of lengthy discussions between the AG's
office and MemberWorks, Inc., a publicly traded direct
telemarketing company, the sponsor of this bill. According to
the author, important recent amendments to this bill, which were
requested by the AG's office and agreed to by the sponsor, apply
the various consumer protections in this bill to all entities
proposing to utilize the exception to the definition of
"discount buying organization," including those currently
utilizing the exception.
Analysis Prepared by : Mark McKenzie / B. & P. / (916)
319-3301
FN: 0001929