REPORT TITLE: 
Charter Tour Operators


DESCRIPTION:
Requires travel agencies operating charter tours to provide
evidence of financial ability to perform contractual obligations
and periodic financial reports.  Provides greater regulator
supervision of travel agencies operating charter tours by the
State, including enhanced authority to conduct audits and
examinations.  (HB1361 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1361
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO CHARTER TOUR OPERATORS.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature finds that existing statutory
 
 2 requirements that travel agencies maintain client trust accounts
 
 3 do not provide adequate assurances of compliance with those
 
 4 statutes, and, therefore, do not adequately protect consumers
 
 5 against the risk of loss in cases of charter tour operators.
 
 6      The purpose of this Act is to protect consumers against the
 
 7 risk of loss from advance purchases of charter tours from travel
 
 8 agencies by requiring travel agencies operating charter tours to
 
 9 provide evidence of their financial ability to perform their
 
10 contractual obligations, and periodic financial reports that
 
11 demonstrate compliance with client trust account requirements.
 
12 This Act also provides for greater regulatory supervision of
 
13 travel agencies operating charter tours by the State, including
 
14 enhanced authority to conduct audits and examinations.  
 
15      This Act is intended to affect only travel agencies that
 
16 directly contract for charter air transportation, with or without
 
17 related hotel or ground transportation.  This Act is not intended
 
18 to affect other types of travel agencies, such as travel agencies
 
19 that sell tickets for charter tours operated by separate charter
 
20 tour operators.
 

 
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 1      SECTION 2.  Section 468L-1, Hawaii Revised Statutes, is
 
 2 amended by adding six new definitions to be appropriately
 
 3 inserted and to read as follows:
 
 4      ""Charter tour" means any travel services in which a travel
 
 5 agency contracts with an air carrier and offers for sale a
 
 6 charter, with or without related ground transportation or hotel
 
 7 accommodations.
 
 8      "Charter tour operator" means any person who sells or offers
 
 9 for sale charter tours, whether offered on a wholesale or retail
 
10 basis, excluding, any direct air carrier as defined in 14 CFR
 
11 380.2, as amended, or any other person to whom the provisions of
 
12 this chapter do not apply.
 
13      "Person" means any sole proprietorship, organization, trust,
 
14 group, association, partnership, joint venture, corporation,
 
15 limited liability company, limited liability partnership, society
 
16 or other entity, or any combination of any of the foregoing.
 
17      "Qualified charter tour client trust assets" means cash or
 
18 cash equivalents held by a bank or a similar federally insured
 
19 financial institution in one or more separate charter tour client
 
20 trust accounts maintained in compliance with section 468L-C.
 
21 Qualified charter tour client trust assets shall not be
 
22 commingled with any other accounts, funds or monies held by a
 
23 charter tour operator.  Qualified charter tour client trust
 

 
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 1 assets shall not include any of the following:
 
 2      (1)  Any notes receivable;
 
 3      (2)  Federal or state bonds or letters of credit; or
 
 4      (3)  Any other general or administrative expenditure that is
 
 5           not directly related to the payment for travel
 
 6           services.
 
 7      "Qualified charter tour client trust liabilities" means all
 
 8 cash or cash equivalents received by a charter tour operator for
 
 9 travel services, and shall be accounted for in a charter tour
 
10 trust liability account on the books and records of the charter
 
11 tour operator.
 
12      "Qualified prepaid charter tour client trust assets" means
 
13 the following cash expenditures for future travel services made
 
14 in advance of the commencement of a charter tour:
 
15      (1)  Advance payments made for air transportation;
 
16      (2)  Advance payments made for hotel accommodations; or
 
17      (3)  Advance payments made for baggage handling or ground
 
18           transportation charges."
 
19      SECTION 3.  Chapter 468L, Hawaii Revised Statutes, is
 
20 amended by adding nine new sections to be appropriately
 
21 designated and to read as follows:
 
22      "468L-A  Charter tour operator registration as travel
 
23 agency required.  (a)  No person shall engage in the business of
 

 
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 1 a charter tour operator unless that person has registered as a
 
 2 travel agency with the director under section 468L-2 and complies
 
 3 with the provisions of this chapter applicable to a travel agency
 
 4 engaged in the business of a charter tour operator.
 
 5     (b)  An application for registration of a charter tour
 
 6 operator as a travel agency or for renewal of a registration of a
 
 7 charter tour operator as a travel agency shall be made on a form
 
 8 provided by the department.  In addition to the information
 
 9 required to be provided by all applicants for registrations as a
 
10 travel agency, the form shall require an applicant for
 
11 registration as a travel agency which intends to engage in the
 
12 business of a charter tour operator to:
 
13     (1)  Provide evidence that a charter tour client trust
 
14          account has been established in accordance with section
 
15          468L-C;
 
16     (2)  State whether the applicant intends to operate seven or
 
17          more charter tours during any twelve month or shorter
 
18          period of the registration period; and
 
19     (3)  Provide evidence that the applicant has complied with
 
20          the financial performance requirements of section 468L-
 
21          B.
 
22     468L-B   Charter tour operator financial performance
 
23 requirements.  (a)  The department shall not approve the initial
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 registration or the renewal of the registration of a travel
 
 2 agency that wishes to engage in the business of a charter tour
 
 3 operator and to operate not more than six charter tours during
 
 4 any twelve month period of the registration period, or during the
 
 5 remainder of the registration period if less than twelve months,
 
 6 for which application is made unless the applicant provides proof
 
 7 that the applicant has obtained a bond, letter of credit, or
 
 8 other security in compliance with 14 CFR 380.34 as the same may
 
 9 be amended, or any successor or replacement federal statute or
 
10 regulation thereto.
 
11     (b)  The department shall not approve the initial
 
12 registration or the renewal of the registration of a travel
 
13 agency that wishes to engage in the business of a charter tour
 
14 operator and to operate seven or more charter tours during any
 
15 twelve month or shorter period of the registration period for
 
16 which application is made unless the applicant either:
 
17     (1)  Posts a bond that is a performance or financial guaranty
 
18          type bond naming the director as the obligee and that
 
19          may be cancelled only if the charter tour operator gives
 
20          ninety days' prior written notice to the surety and if
 
21          the surety give sixty days' prior written notice to the
 
22          director of cancellations of the bond; or
 
23     (2)  Obtains an irrevocable letter of credit that is a
 

 
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 1          guarantee of payment for a term of one year naming the
 
 2          director as beneficiary, with a provision for automatic
 
 3          extension for additional annual periods, and that may be
 
 4          canceled only if the charter tour operator gives prior
 
 5          written notice by certified mail to the director and to
 
 6          the issuer at least ninety days before the letter's
 
 7          expiration date or the date on which the charter tour
 
 8          operator intends the letter to cases being effective or
 
 9          the issuer gives prior written notice by certified mail
 
10          to the director at least sixty days before the
 
11          expiration date.
 
12     (c)  The bond or letter of credit shall be issued by a surety
 
13 or federally insured lending institution authorized to do
 
14 business in the State to indemnify any consumer who may suffer
 
15 loss as a result of nonperformance by a charter tour operator.
 
16     (d)  A charter tour operator shall not provide the required
 
17 coverage through multiple bonds or irrevocable letters of credit
 
18 but shall provide either a single bond or a single irrevocable
 
19 letter of credit.  A charter tour operator may substitute the
 
20 bond with an irrevocable letter of credit and vice versa pursuant
 
21 to subsection (h), but shall not provide one in addition to the
 
22 other to reach the required aggregate amount of coverage.
 
23     (e)  Upon cancellation or expiration of the bond or letter of
 

 
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 1 credit, the surety or insurer shall remain liable for any claims
 
 2 against the bond or letter of credit for a period of six months;
 
 3 provided that:
 
 4     (1)  The debts were incurred while the bond or letter of
 
 5          credit was in effect; and
 
 6     (2)  The director notifies the surety or insurer, as the case
 
 7          may be, of any claims within ninety days of discovery of
 
 8          any claims.
 
 9     (f)  The surety or insurer shall not be required to release
 
10 any moneys or collateral to the charter tour operator during the
 
11 six months after cancellation of the bond or expiration of the
 
12 letter of credit.
 
13     (g)  The amount of coverage of the bond or irrevocable letter
 
14 of credit shall be equal to $1,000,000, less the amount of any
 
15 security provided by the applicant under 14 CFR 380.34 as the
 
16 same may be amended, or any successor or replacement federal
 
17 statute or regulation thereto.
 
18     (h)  A bond shall be accepted as replacement for another bond
 
19 or an irrevocable letter of credit and an irrevocable letter of
 
20 credit shall be accepted as replacement for another irrevocable
 
21 letter of credit or a bond if:
 
22     (1)  The effective date of a replacement bond is prior to or
 
23          on the cancellation date of the bond being replaced or
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1          the expiration date of the irrevocable letter of credit
 
 2          being replaced, as the case may be, and the replacement
 
 3          bond is received by the director before the cancellation
 
 4          date or the expiration date, as the case may be; or
 
 5     (2)  The replacement irrevocable letter of credit is received
 
 6          by the director at least fifteen days prior to the
 
 7          expiration date of the irrevocable letter of credit
 
 8          being replaced or is received by the director on or
 
 9          before the cancellation date of the bond being replaced,
 
10          as the case may be.
 
11     (i)  A charter tour operator shall not operate more than six
 
12 charter tours during any twelve month period unless the charter
 
13 tour operator has provided and maintains in effect a bond or
 
14 letter of credit in accordance with subsection (c).
 
15     468L-C  Charter tour client trust account.  Every travel
 
16 agency engaged in the business of a charter tour operator shall
 
17 establish and maintain a separate charter tour client trust
 
18 account solely for the purpose of the travel agency's charter
 
19 tour business.  The charter tour client trust account shall be
 
20 maintained in accordance with sections 468L-5 and 468L-D.
 
21     468l-D  Maintenance of charter tour operator accounts.  (a)
 
22 Every charter tour operator shall maintain adequate books and
 
23 records that provide for a proper accounting of total qualified
 

 
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 1 charter tour client trust assets and qualified charter tour
 
 2 client trust liabilities for all charter tours for which funds
 
 3 have been accepted.
 
 4     (b)  Every charter tour operator shall maintain on its books
 
 5 and records a charter tour trust liability account for the
 
 6 purpose of accounting for qualified charter tour client trust
 
 7 liabilities.
 
 8     (c)  The charter tour trust liability account shall only be
 
 9 adjusted in the following manner.
 
10     (1)  The charter tour trust liability account shall be
 
11          reduced by the amount of actual payments made by the
 
12          charter tour operator for air transportation, hotel
 
13          accommodations, baggage handling or ground
 
14          transportation charges with respect to the charter tour
 
15          operator's  current obligations to provide travel
 
16          services or to past travel services provided by the
 
17          charter tour operator; provided, that the charter tour
 
18          trust liability account shall not be reduced for any
 
19          expenditure which constitutes a qualified pre-paid
 
20          charter tour client trust asset;
 
21     (2)  The charter tour trust liability account also shall be
 
22          reduced by the amount of payments made by the charter
 
23          tour operator of federal transportation taxes that are
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1          payable as a result of a charter tour and for
 
 2          commissions payable to third party travel agents; and
 
 3     (3)  Only after (A) all of the liabilities described in
 
 4          subsections (1) and (2) with respect to a specific
 
 5          charter tour have been satisfied through payment; (B)
 
 6          the obligation to provide travel services has been fully
 
 7          provided; and (C) the travel has been completed, then
 
 8          and only then, may any funds remaining in the charter
 
 9          tour client trust account relating to the specific
 
10          charter tour be withdrawn from the charter tour client
 
11          trust account and deposited into the general accounts of
 
12          the charter tour operator, and the charter tour trust
 
13          liability account shall be reduced by the amount so
 
14          withdrawn from the charter tour client trust account.
 
15       468L-E  Maintenance of qualified charter tour client trust
 
16 assets by charter tour operators.  A charter tour operator shall
 
17 regularly maintain qualified charter tour client trust assets in
 
18 an amount which is equal to or exceeds the qualified charter tour
 
19 client trust liabilities of the charter tour operator.  A charter
 
20 tour operator shall be deemed to be in substantial compliance
 
21 with the provisions of this section even if, during any twelve
 
22 month period, qualified charter tour client trust liabilities
 
23 exceed qualified charter tour client trust assets for any one,
 

 
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 1 but not more than one, quarterly reporting period applicable
 
 2 under section 468L-F; provided that qualified charter tour client
 
 3 trust assets at all times shall be equal to or exceed not less
 
 4 than ninety percent of qualified charter tour client trust
 
 5 liabilities.
 
 6      468L-F  Quarterly report filing requirements for charter
 
 7 tour operators.  Not later than forty-five days after the end of
 
 8 each quarter, each registered travel agency engaging in the
 
 9 business of a charter tour operator, at its own expense, shall
 
10 file a quarterly report which shall be prepared by an independent
 
11 certified public accountant and shall cover the immediately
 
12 preceding quarter.  Each report shall include a statement by an
 
13 independent certified public accountant that the charter tour
 
14 client trust account has been maintained in accordance with the
 
15 requirements of sections 468L-5, 468L-C, and 468L-D, or
 
16 specifying the grounds on which such a statement cannot be made.
 
17      468L-G  Failure by charter tour operator to file required
 
18 reports; lack of compliance by charter tour operators, remedies.
 
19     (a)  Any registered travel agency engaged in the business of
 
20 a charter tour operator that fails to file any report required to
 
21 be filed under this chapter or that files a report indicating
 
22 that the charter tour operator is not in compliance with the
 
23 provisions of this chapter, including, without limitation, any
 
24 report that indicates that the charter tour client trust account
 

 
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 1 is not in compliance with the requirements of this chapter, shall
 
 2 be deemed not to be in substantial compliance with the
 
 3 requirements of this chapter.
 
 4     (b)  In addition to any other remedy available, the director
 
 5 may cause a citation to be issued with respect to a registered
 
 6 travel agency engaged in the business of a charter tour operator
 
 7 which has not acted or is not acting in compliance with any
 
 8 provision of this chapter.
 
 9     (c)  Each citation shall be in writing and shall describe the
 
10 basis of the citation, including the specific statutory provision
 
11 alleged to have been violated and may contain an order of
 
12 abatement directing the travel agency to cease engaging in the
 
13 business of a charter tour operator and an assessment of
 
14 administrative fines as provided by this section.  All fines
 
15 collected under this section shall be deposited in the special
 
16 fund established under section 26-9(o).
 
17     (d)  Any registered travel agency engaged in the business of
 
18 a charter tour operator who violates this section shall be
 
19 assessed an administrative fine of up to $25,000 for the first
 
20 violation; up to $50,000 for the second violation; and up to
 
21 $75,000 for any subsequent violations.
 
22     (e)  Service of a citation issued under this section shall be
 
23 made by personal service or by certified mail, restricted
 

 
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 1 delivery, sent to the last known business address of the travel
 
 2 agency.
 
 3     (f)  Any person issued a citation under this section may
 
 4 submit a written request to the director for a hearing, within
 
 5 twenty days from the service of the citation, with respect to the
 
 6 violations alleged, the scope of the order of abatement, or the
 
 7 amount of the administrative fine assessed.
 
 8     (g)  If the person issued a citation under this section
 
 9 timely notifies the director of a request for a hearing, the
 
10 director shall afford an opportunity for a hearing under chapter
 
11 91.
 
12     (h)  If the person issued a citation under this section does
 
13 not submit a written request to the director for a hearing within
 
14 twenty days from the service of the citation, the citation shall
 
15 be transmitted to the director for issuance of a final order.
 
16     (i)  The sanctions and disposition authorized under this
 
17 section shall be separate and in addition to all other remedies
 
18 provided by law.
 
19     (j)  The director may adopt rules pursuant to chapter 91
 
20 necessary for the purpose of this section.
 
21     468L-H  Audit of charter tour operators.  (a)  The
 
22 department may audit the records of any charter tour operator
 
23 with respect to its funds.  For that purpose, the department
 

 
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 1 shall have free access to the office and places of business of
 
 2 the charter tour operator.  Notwithstanding section 468L-3(6),
 
 3 the department may contract with a private consultant to audit
 
 4 the records of any charter tour operator, the cost of which shall
 
 5 be borne by the charter tour operator regardless of whether a
 
 6 violation of this chapter is established.
 
 7     (b)  The director, upon notice and hearing pursuant to
 
 8 chapter 91, may temporarily suspend or may revoke the
 
 9 registration as a travel agency of any charter tour operator who
 
10 fails to cooperate with the department in any examination or
 
11 audit of the charter tour operator conducted or contracted for by
 
12 the director.
 
13     468L-I  Violation of charter tour operator provisions.
 
14 Without limitation to any other remedies or penalties which may
 
15 be applicable, any person who knowingly accepts monies for
 
16 charter tours without being registered as a travel agency in
 
17 compliance with this chapter or any charter tour operator which
 
18 knowingly is not in compliance with the provisions of this
 
19 chapter and continues to accept monies for charter tours, shall
 
20 be guilty of a misdemeanor."
 
21     SECTION 4.  Section 468L-1, Hawaii Revised Statutes, is
 
22 amended by amending the definition of "travel agency" to read as
 
23 follows:
 

 
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 1     ""Travel agency" means any [sole proprietorship,
 
 2 organization, trust, group, association, partnership,
 
 3 corporation, society, or combination of such, which] person who
 
 4 for compensation or other consideration, acts or attempts to act
 
 5 as an intermediary between a person seeking to purchase travel
 
 6 services and any person seeking to sell travel services."
 
 7     SECTION 5.  In codifying the new sections added to chapter
 
 8 468L, Hawaii Revised Statutes, by section 3 of this Act, the
 
 9 revisor of statutes shall substitute appropriate section numbers
 
10 for the letters used in the new sections designated in this Act.
 
11     SECTION 6.  Statutory material to be repealed is bracketed.
 
12 New statutory material is underscored.
 
13     SECTION 7.  This Act shall take effect on October 1, 1999.