REPORT TITLE: 
Charter Tour Operators


DESCRIPTION:
Imposes statutory regulations on travel agencies operating
charter tours.  (HB1361 CD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1361
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 2
TWENTIETH LEGISLATURE, 1999                                S.D. 2
STATE OF HAWAII                                            C.D. 1

                                                             
________________________________________________________________
________________________________________________________________


                     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 by Title 14,
 
11 Code of Federal Regulations, section 380.2, as amended, or any
 
12 other person to whom the provisions of 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 sections 468L-5 and
 
21 468L-C.  Qualified charter tour client trust assets shall not be
 
22 commingled with any other accounts, funds, or moneys held by a
 
23 charter tour operator.  Qualified charter tour client trust
 
24 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 that is
 
 4           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, and shall be accounted for in a charter tour
 
 9 trust liability account on the books and records of the charter
 
10 tour operator.
 
11      "Qualified prepaid charter tour client trust assets" means
 
12 the following cash expenditures for future travel services made
 
13 in advance of the commencement of a charter tour advance payments
 
14 for:
 
15      (1)  Air transportation;
 
16      (2)  Hotel accommodations; or
 
17      (3)  Baggage handling or ground transportation charges."
 
18      SECTION 3.  Chapter 468L, Hawaii Revised Statutes, is
 
19 amended by adding nine new sections to be appropriately
 
20 designated and to read as follows:
 
21      "�468L-A  Charter tour operator registration as travel
 
22 agency required.  (a)  No person shall engage in the business of
 
23 a charter tour operator unless that person has registered as a
 

 
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 1 travel agency with the director under section 468L-2 and complies
 
 2 with the provisions of this chapter applicable to a travel agency
 
 3 engaged in the business of a charter tour operator.
 
 4      (b)  An application for registration of a charter tour
 
 5 operator as a travel agency or for renewal of a registration of a
 
 6 charter tour operator as a travel agency shall be made on a form
 
 7 provided by the department.  In addition to the information
 
 8 required to be provided by all applicants for registration as a
 
 9 travel agency, the form shall require an applicant for
 
10 registration as a travel agency which intends to engage in the
 
11 business of a charter tour operator to:
 
12      (1)  Provide evidence that a charter tour client trust
 
13           account has been established in accordance with
 
14           sections 468L-5 and 468L-C;
 
15      (2)  State whether the applicant intends to operate seven or
 
16           more charter tours during any twelve months or shorter
 
17           period of the registration period;
 
18      (3)  State whether the applicant intends to operate sixteen
 
19           or more charter tours during any twelve months or
 
20           shorter period of the registration period; and
 
21      (4)  Provide evidence that the applicant has complied with
 
22           the financial performance requirements of section
 
23           468L-B.
 

 
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 1      �468L-B  Charter tour operator financial performance
 
 2 requirements.  (a) The department shall not approve the initial
 
 3 registration or the renewal of registration of a travel agency
 
 4 that wishes to engage in the business of a charter tour operator
 
 5 and to operate not more than six charter tours during any twelve-
 
 6 month period of the registration period, or during the remainder
 
 7 of the registration period if less than twelve months, for which
 
 8 application is made unless the applicant provides proof that the
 
 9 applicant has obtained a bond, letter of credit, or other
 
10 security in compliance with Title 14, Code of Federal Regulation,
 
11 section 380.34, as the same may be amended, or any successor or
 
12 replacement federal statute or regulation thereto.
 
13      (b) The department shall not approve the initial
 
14 registration or the renewal of registration of a travel agency
 
15 that wishes to engage in the business of a charter tour operator
 
16 and to operate seven or more charter tours during any twelve
 
17 months or shorter period of the registration period for which
 
18 application is made unless the applicant either:
 
19      (1)  Posts a performance or financial guaranty-type bond
 
20           naming the director as the obligee that may be
 
21           cancelled only if the charter tour operator gives
 
22           ninety days' prior written notice to the surety and the
 
23           surety gives sixty days' prior written notice to the
 
24           director of cancellation of the bond; or
 

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

 
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 1      (e)  Upon cancellation or expiration of the bond or letter
 
 2 of credit, the surety or insurer shall remain liable for any
 
 3 claims against the bond or letter of credit for a period of six
 
 4 months; provided that:
 
 5      (1)  The debts were incurred while the bond or letter of
 
 6           credit was in effect; and
 
 7      (2)  The director notifies the surety or insurer, as the
 
 8           case may be, of any claims within ninety days of
 
 9           discovery of any claims.
 
10      (f)  The surety or insurer shall not be required to release
 
11 any moneys or collateral to the charter tour operator during the
 
12 six months after cancellation of the bond or expiration of the
 
13 letter of credit.
 
14      (g)  The amount of coverage of the bond or irrevocable
 
15 letter of credit shall be:
 
16      (1)  Equal to $300,000, less the amount of any security
 
17           provided by the applicant under Title 14, Code of
 
18           Federal Regulations, section 380.34, as the same may be
 
19           amended, or any successor or replacement federal
 
20           statute or regulation thereto, for a travel agency
 
21           planning to engage in the business of a charter tour
 
22           operator and to operate seven to fifteen charter tours
 
23           during any twelve months or shorter period of the
 
24           registration period for which application is made; or
 

 
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 1      (2)  Equal to $1,000,000, less the amount of any security
 
 2           provided by the applicant under Title 14, Code of
 
 3           Federal Regulations, section 380.34, as the same may be
 
 4           amended, or any successor or replacement federal
 
 5           statute or regulation thereto, for a travel agency
 
 6           planning to engage in the business of a charter tour
 
 7           operator and to operate more than fifteen charter tours
 
 8           during any twelve months or shorter period of the
 
 9           registration period for which application is made.
 
10      (h)  A bond shall be accepted as replacement for another
 
11 bond or an irrevocable letter of credit and an irrevocable letter
 
12 of credit shall be accepted as replacement for another
 
13 irrevocable letter of credit or a bond if:
 
14      (1)  The effective date of a replacement bond is prior to or
 
15           on the cancellation date of the bond being replaced or
 
16           the expiration date of the irrevocable letter of credit
 
17           being replaced, as the case may be, and the replacement
 
18           bond is received by the director before the
 
19           cancellation date or the expiration date, as the case
 
20           may be; or
 
21      (2)  The replacement irrevocable letter of credit is
 
22           received by the director at least fifteen days prior to
 
23           the expiration date of the irrevocable letter of credit
 

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

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

 
 
 
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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 charter tour
 
 9 client trust account relating to the specific charter tour be
 
10 withdrawn from the charter tour client trust account and
 
11 deposited into the general accounts of the charter tour operator,
 
12 and the charter tour trust liability account shall be reduced by
 
13 the amount so withdrawn from the charter tour client trust
 
14 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 per cent 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 that shall cover the immediately
 
11 preceding quarter.  Each report shall include a statement by an
 
12 independent certified public accountant that the charter tour
 
13 client trust account has been maintained in accordance with the
 
14 requirements of sections 468L-5, 468L-C, and 468L-D, or
 
15 specifying the grounds on which such a statement cannot be made.
 
16      �468L-G  Failure by charter tour operator to file required
 
17 reports; lack of compliance by charter tour operators; remedies.
 
18 (a)  Any registered travel agency engaged in the business of a
 
19 charter tour operator which fails to file any report required to
 
20 be filed under this chapter or which files a report indicating
 
21 that the charter tour operator is not in compliance with the
 
22 provisions of this chapter, including without limitation, any
 
23 report which 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 that 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
 
10 the basis of the citation, including the specific statutory
 
11 provision alleged to have been violated and may contain an order
 
12 of 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:
 
20      (1)  $25,000 for the first violation;
 
21      (2)  $50,000 for the second violation; and
 
22      (3)  $75,000 for any subsequent violations.
 

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

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

 
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                                     H.B. NO.           H.D. 2
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 1      SECTION 4.  Section 468L-1, Hawaii Revised Statutes, is
 
 2 amended by amending the definition of "travel agency" to read as
 
 3 follows:
 
 4      ""Travel agency" means any [sole proprietorship,
 
 5 organization, trust, group, association, partnership,
 
 6 corporation, society, or combination of such, which] person who
 
 7 for compensation or other consideration, acts or attempts to act
 
 8 as an intermediary between a person seeking to purchase travel
 
 9 services and any person seeking to sell travel services."
 
10      SECTION 5.  In codifying the new sections added to chapter
 
11 468L, Hawaii Revised Statutes, by section 3 of this Act, the
 
12 revisor of statutes shall substitute appropriate section numbers
 
13 for the letters used in the new sections designated in this Act.
 
14      SECTION 6.  Statutory material to be repealed is bracketed.
 
15 New statutory material is underscored.
 
16      SECTION 7.  This Act shall take effect on October 1, 1999.