REPORT TITLE:
Charter Tour Operators


DESCRIPTION:
Provides for the registration of charter tour operators as travel
agents; requires bonding or a letter of credit to protect
consumers; requires quarterly reports by an independent CPA;
allows DCCA to issue citations and impose fines.  (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.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 charter tour operators maintain client trust
 
 3 accounts do not provide adequate assurances of compliance with
 
 4 those statutes, and, therefore, do not adequately protect
 
 5 consumers against the risk of loss.  The purpose of this Act is
 
 6 to protect consumers against the risk of loss from advance
 
 7 purchases of charter tours from charter tour operators by
 
 8 requiring that charter tour operators be licensed and that they
 
 9 provide evidence of their financial ability to perform their
 
10 contractual obligations, together with periodic financial
 
11 reporting which provides assurances of compliance with the client
 
12 trust account requirements.  
 
13      This Act also provides for greater regulatory supervision of
 
14 charter tour operators by the State, including enhanced authority
 
15 to conduct audits and examinations of charter tour operators.
 
16 This Act is intended to affect only travel agencies which
 
17 directly contract for charter air transportation, with or without
 
18 related hotel or ground transportation.  This Act is not intended
 
19 to affect other types of travel agencies, such travel agencies
 

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

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

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

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

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

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

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

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

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

 
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 1 charter tour client trust assets for any one, but not more than
 
 2 one, quarterly reporting period applicable under section 468L-F;
 
 3 provided that qualified charter tour client trust assets at all
 
 4 times shall be equal to or exceed not less than ninety per cent
 
 5 of qualified charter tour client trust liabilities.  Qualified
 
 6 charter tour client trust assets shall not be commingled with any
 
 7 other accounts, funds, or moneys held by a charter tour operator.
 
 8      468L-F  Quarterly report filing requirements for charter
 
 9 tour operators.  Not later than forty-five days after the end of
 
10 each quarter, each registered travel agency engaging in the
 
11 business of a charter tour operator, at its own expense, shall
 
12 file a quarterly report with the director which shall be prepared
 
13 by an independent certified public accountant and shall cover the
 
14 immediately preceding quarter.  Each report shall include a
 
15 statement by an independent certified public accountant that the
 
16 charter tour client trust account has been maintained in
 
17 accordance with the requirements of sections 468L-5, 468L-C, and
 
18 468L-D, or specifying the grounds on which such a statement
 
19 cannot be made.
 
20      468L-G  Failure by charter tour operator to file required
 
21 reports; lack of compliance by charter tour operators; remedies.
 
22 (a)  Any registered travel agency engaged in the business of a
 
23 charter tour operator that fails to file any report required to
 

 
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 1 be filed under this chapter or that files a report indicating
 
 2 that the charter tour operator is not in compliance with this
 
 3 chapter, including, without limitation, any report which
 
 4 indicates that the charter tour client trust account is not in
 
 5 compliance with the requirements of this chapter, shall be deemed
 
 6 not to be in substantial compliance with the requirements of this
 
 7 chapter.
 
 8      (b)  In addition to any other remedy available, the director
 
 9 may cause a citation to be issued with respect to a registered
 
10 travel agency engaged in the business of a charter tour operator
 
11 which has not acted or is not acting in compliance with any
 
12 provision of this chapter.
 
13      (c)  Each citation shall be in writing and shall describe
 
14 the basis of the citation, including the specific statutory
 
15 provision alleged to have been violated and may contain an order
 
16 of abatement directing the travel agency to cease engaging in the
 
17 business of a charter tour operator and an assessment of
 
18 administrative fines as provided by this section.  All fines
 
19 collected under this section shall be deposited in the special
 
20 fund established under section 26-9(o).
 
21      (d)  Any registered travel agency engaged in the business of
 
22 a charter tour operator that violates this section shall be
 
23 assessed an administrative fine of up to $25,000 for the first
 

 
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 1 violation; up to $50,000 for the second violation; and up to
 
 2 $75,000 for any subsequent violations.
 
 3      (e)  Service of a citation issued under this section shall
 
 4 be made by personal service or by certified mail, restricted
 
 5 delivery, sent to the last known business address of the travel
 
 6 agency.
 
 7      (f)  Any person issued a citation under this section may
 
 8 submit a written request to the director for a hearing, within
 
 9 twenty days from the service of the citation, with respect to the
 
10 violations alleged, the scope of the order of abatement, or the
 
11 amount of the administrative fine assessed.
 
12      (g)  If the person issued a citation under this section
 
13 timely notifies the director of a request for a hearing, the
 
14 director shall afford an opportunity for a hearing under
 
15 chapter 91.
 
16      (h)  If the person issued a citation under this section does
 
17 not submit a written request to the director for a hearing within
 
18 twenty days from the service of the citation, the citation shall
 
19 be transmitted to the director for issuance of a final order.
 
20      (i)  The sanctions and disposition authorized under this
 
21 section shall be separate and in addition to all other remedies
 
22 provided by law.
 
23      (j)  The director may adopt rules pursuant to chapter 91
 

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

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