New Safety Net for Travelers Left Holding The Bag : Consumers: Landmark state law provides restitution if tour operators and travel agencies don’t deliver.
It took years of legislative wrangling in Sacramento--not to mention an unprecedented act of self-regulation among this state’s travel industry leaders--but California consumers now have a landmark law aimed at protecting them when travel agencies and tour operators skip town or go bust.
The bill (AB 918), sponsored as by Assemblywoman Jackie Speier (D-Burlingame), was backed by the Legislature in August and signed by Gov. Pete Wilson on Sept. 29. It establishes a travel restitution fund for consumers, which is expected to reach $1.6 million.
The cost of creating and maintaining that fund will be carried by sellers of travel--tour operators and travel agents, principally--who will pay $325 in fees for each of their offices in 1995 and an anticipated $100-$125 in 1996. The bill is not aimed at airlines, hotels and cruise companies, but at the thousands of intermediary companies that arrange trips, collect money from consumers and pass it along to transportation and lodging providers.
Once the fund is in place, if a consumer advances money to a registered company and the firm fails or vanishes, the consumer may be able to recover his or her losses, up to $15,000 per person. (Refunds may be possible in the case of U.S. hotel failures if the hotel is part of a tour package; foreign companies are essentially uncovered by the law.)
State and tourism officials expect to spend 1995 collecting fees and setting up the new system, with the law to take full effect in January, 1996.
Industry authorities agree that the law is the first of its kind in the nation: Basically, after years of criticism over its lack of professionalism, the industry is taxing itself to build consumer trust, and ceding oversight of the program to government officials. The legislation grew from two years of negotiation and compromise between leaders of the California Coalition of Travel Organizations (CCTO), an industry group, and the state attorney general’s office--talks that followed years of aborted efforts to give travelers legal protection from business failures and fly-by-night operators.
Industry authorities have estimated that travel scams cost consumers nationwide $12 billion a year, and state officials say 30 California-based travel businesses and 144 others nationwide have declared bankruptcy or ceased operation between January, 1986, and May of this year. The most notorious case in this state was the 1989 collapse of Hemphill-Harris Travel in Encino, which left hundreds of travelers stranded around the world, and cost the company’s California customers an estimated $700,000 or more.
The bill requires companies selling travel to pay fees and register through the state attorney general’s office and a new nonprofit agency to be under the state’s oversight. The companies are then assigned a registration number that they must include in advertisements. (Firms that advertise with false registration numbers could face felony prosecution by the attorney general.)
Registration will be required not only of California companies, but also of out-of-state tour operators that sell to Californians, even if they don’t advertise here. (The law is less clear on out-of-state travel agents; if they make bookings using credit cards, don’t deposit California money into their accounts and don’t advertise here, they may not be required to register.)
Los Angeles travel agency owner and attorney Susan Tanzman Kaplan (a key player in talks who serves as president of the CCTO and vice president and treasurer for the American Society of Travel Agents) offers this advice to consumers: Starting in 1996, if a travel advertisement from a tour operator or travel agent doesn’t include a state registration number, “don’t purchase from them. And be wary when you see any (travel) advertisement with an 800 number that doesn’t have the registration number.”
California law has long required “travel promoters” to maintain trust accounts or bonds to protect consumer funds, but industry officials say minimal enforcement and uncertainty over the definition of “promoter” made the law largely ineffectual; state authorities acknowledge that only about 300 businesses were registered.
Past industry efforts at protection funds have yielded mixed results. The U.S. Tour Operators Assn., which includes three dozen of the largest companies in the business, runs a similar program, requiring each member company to maintain a $1 million bond or equivalent. But last year the American Society of Travel Agents, unsatisfied with its ability to keep its fund level high to cover the cost of a major failure, moved to discontinue a similar program among its members.
Architects of the new law say they expect to register 8,000 companies, assessing them a $200 fee to start the restitution fund, a $25 fee to cover administrative costs and a $100 annual registration fee. In following years, annual assessments of $100 will be used to replenish the fund. If it becomes necessary, travel sellers could be assessed up to $200 more in a year in order to keep the fund balance above $1.2 million. The $25 start-up administrative fee may become an annual assessment. The bill also includes a sunset clause that requires reauthorization by the governor and Legislature before the end of 1998.
The statewide assessments are based on the number of locations maintained by a travel seller; hence a mom-and-pop travel agency will owe $325 next year, and American Express Travel Services, with more than 70 retail offices statewide, will owe $325 for each location.
