621 18th St
Oakland, California 94612
(415) 729-3748

State Regulations: Enforcement is key

State Regulations: Enforcement is key
For details from the 10 most significant travel agent laws, see State Regulations: Who requires what
By Nadine Godwin 
Originally Published here:
A number of state governments regulate travel agents, or try to, but often the level of enforcement activity is not high. As a result, some agents find it hard to take their own state laws seriously.
In all cases, state officials said they rely heavily on complaints to determine when they need to investigate a situation. They don't have the manpower to do otherwise.

Even California, viewed as almost predatory in its pursuit of out-of-state agents with Web sites, relies heavily on complaints to supplement internal reviews of travel promotions, Web sites and other sources of information, a spokeswoman said.

For some officials, state laws don't provide much leverage either.

In Illinois, where there is no registration at all, Gil Fergus, chief of the attorney general's consumer fraud bureau, said legal actions against travel promoters, which occur about once a year, largely come after things have gone south.

Nevertheless, he said, by leaning on the law, "we get judgments for civil penalties and injunctions against future travel-selling -- and, yes, we do collect sometimes. The law probably could be better, but this is what the Legislature gave us."

In Ohio, it is impossible to track enforcement because the Department of Commerce, which handles registrations, has no enforcement authority. Complaints are referred to the attorney general's office, and enforcement falls to county prosecutors.

This is not science, and it does not prove anything, but Travel Weekly could not find agents who had even heard of an enforcement action in Ohio. One agent was advised by her attorney not to bother with the bond because "they are not enforcing it anyway."

Laureen Kai, executive officer for the travel agency program in Hawaii, said, "We do not have so many resources for policing this," which is why complaints are the usual starting point.

She did not know the frequency of disciplinary actions, but there have been "several," involving a range of issues, she said, such as failure to abide by disclosure rules and trust account requirements.

Hawaii may benefit most from an ad hoc kind of enforcement. Danny Casey, ASTA's Hawaii chapter president, explained that there is a high number of non-ARC outlets in the state, many of which work with air wholesalers that sell tickets to Asia. The retailers are registered, he said, because some of those wholesalers require that they be registered.

Lisa Steffens, regulatory consultant for sellers of travel in Florida, said the most common offense is nonregistration, which she hears about in complaints from consumers or competitors. She said her office responds to about 50 of these a year, and they typically involve non-ARC outlets whose operators "don't think the law applies to them" and to ARC or non-ARC agencies with new owners who don't realize the previous owner's registration is not transferable.

Her office sends a registration kit to the offenders, who get 60 days to register without repercussions. After that, Steffens said, cases are referred to appropriate investigators for possible enforcement action, which can include a fine.

Washington state keeps a tally of alleged miscreants. A Department of Licensing spokeswoman said that since January 1999, there have been 1,238 complaint cases opened. They resulted in 35 legal actions. As with Florida, unlicensed activity is the most common offense.

Depending on the violation and the offending agency's history, Washington has collected fines, entered into stipulated agreements to halt illegal activity, and revoked licenses with up to a 10-year period during which the offender cannot reapply.

Washington also sends letters almost weekly to out-of-state companies asking them to register, the spokeswoman said.

California routinely sends violation notices to out-of-staters, as well. San Francisco attorney Alexander Anolik said the state threatens cease-and-desist orders. This reels in the unregistered, who pay required fees plus, often, fines that max out at $500 for registering late and $500 for tardiness in contributing to the restitution fund.

Despite a significant reliance on complaints from consumers and from "snitches," the state is proactive about trying to determine if agencies are abiding by the law, a spokeswoman said. She said there have been felony convictions, but she was uncertain if anyone has done jail time.

Anolik said he knows of one in-state firm that paid a six-figure fine (at least $140,000) that was calculated based on the number of ads that appeared without the firm's registration number, but it drives him "crazy" that the travel firm did not negotiate over the figure, which he said could have been cut drastically.

In Rhode Island, with only about 80 licensed agencies, the state pursues violations once or twice a year, said Joseph Da Cruz, chief licensing examiner. "This doesn't happen all that often."

Anolik also knows Iowa takes steps to enforce its law; he hears about it from his clients "after they have been busted."

In Massachusetts, a spokeswoman for the attorney general said enforcement of its disclosure rules leans on customer complaints. If the state sees patterns, it deals with offenders in a range of ways, from a warning letter to litigation.

What about enforcement in Nevada, which has the least-established protocol? We found agents there without their required bonds. Sharna Blumenfeld, president of ASTA's Southern Nevada chapter, said she doubts the consumer affairs department has had time to start enforcement yet.

Although state governments, as noted here, do what they can to ensure travel agents abide by the law, the level of enforcement varies, and there are cracks one could fall through -- at least for a while -- in every state.

Nevertheless, most agents strive to abide by their laws although there are times and places where noncompliance is worth the risk. Sometimes, it is accidental.

We encountered agents who have not registered or obtained required bonds or placed all client funds into mandated trust accounts.

Others have been slow to publicize registration numbers properly, and one admitted she must make contract adjustments to protect the status of her independent contractors.

A few unwittingly revealed a practice that violates several state laws: allowing independent contractors who are registered through their host agency to pocket service fees.

Although several states expect out-of-state agencies to register, many agents don't want to hear about it; as one agent put it, retailers "all over the country are ignoring the laws of other states."

Some agents, in whispered conversations or in the glare of public forums, have said, "Let them come get me," or words to that effect.

When we asked one Nevada retailer -- registered in her home state -- if she sold to California clients, she hung up. Naturally, that sent us to her Web site; we found self-booking options, no obvious means to weed out California consumers and no indication of a California registration number.



Laying down the law: Where the rules apply

Nine states -- accounting for a disproportionate 35% of ARC-approved locations -- have laws on the books that require some or all of their travel agents to take steps to protect consumer funds.

The laws range from a California statute that requires agents to maintain trust accounts and contribute to a restitution fund to an Illinois law that imposes a trust account rule only on non-ARC outlets and does not require any travel seller to identify itself through registration.

Other variations include registration for agencies' salaried staff in Nevada and Rhode Island (the latter requires exams, too) and the imposition of anything from modest to sweeping disclosure requirements.

Massachusetts is not one of the states with financial security rules but nevertheless ranks right up there when it comes to an extensive list of disclosure requirements for the trade -- but the rules do not apply for business trips.

Other laws are narrowly targeted: New York has its Truth in Travel Law, and Minnesota and Virginia target travel clubs, or as Minnesota's law describes them, "membership travel contracts."

Finally, Oregon's new law, envisioning self-regulation under the auspices of trade associations, is a work in progress.

Meanwhile, agents have escaped bonding and laws of that ilk in states like Massachusetts, New York and Pennsylvania -- mostly due to political factors beyond their control.

Existing laws, whatever their provisions, are unpopular with many agents. Although the trade often supports the notion of laws to get rid of the "bad guys," agents are not usually convinced their states do that.

Retailers are most vocal in Nevada, where the 2001 law is the newest and the state imposes a burdensome $50,000 bond on non-ARC outlets, often the smallest firms. In 2003, legislators will be pressed to change that.

In California, despite highly visible trade support for the current law, dating from 1995, there are some who believe big changes are called for. The agents should get that chance at change given the current law expires at the end of 2005.

In Hawaii, agents see flaws in their law, too, but they are even more aggravated by a 4% excise tax on their commissions. That puts registration into perspective. -- N.G.



Still have questions? Keep your browser aimed here

Travel agents like the idea of a marketplace swept clean of travel sellers who are frauds -- or who give the industry a bad name even without being criminal.

Most agents, however, don't believe their laws are particularly good at doing that. Instead, all too many retailers see their laws as fund-raisers for the state and unfair mechanisms that place disproportionate burdens on non-ARC agencies, let suppliers off the hook even as they compete with the trade or force good agents to subsidize deadbeats.

They believe registration certificates, trust accounts and the like are highly unlikely to improve the trade's image in the eyes of the public. Instead, little things, such as failing to post a state registration number in an ad, can make them criminals in the eyes of the state.

A fuller discussion of trade perceptions of state regulation will be posted on this site on Sept. 2.

In the weeks that follow that, additional articles on this site will address a wide range of questions raised by the laws' existence, as follows:

• How do you tell clients what they need to know about their trips and their consumer rights? The state's way, that's how.

• What do you do about getting a big bond? Ignore the rule, maybe.

• How do the laws affect interstate dealings between host agencies and outside sales personnel? They kill deals, depending on where the independent is located.

• When must an agency register in a state other than its own? That depends; where do you sell travel? California enforces aggressively, but Florida, Iowa and Washington aren't shy either.

• Could an agency challenge states that reach across state lines for registrants? Yes, but it would be costly and the outcome uncertain.

• Do outside contractors have to get their own registration numbers in order to claim independent status under tax and insurance laws? Not necessarily.

• Giving up ARC accreditation is a hot topic these days, but is it such a good idea in states where non-ARC agencies carry the biggest burden? Probably not, and maybe not in any case.

• What can agents do about these imperfect laws? Lobby for changes of several kinds, and make the best of an imperfect world: Brag in public about what you do to meet state requirements.

Finally, to accompany this series, TravelWeekly.com has posted a summary of details from the 10 most significant travel agent laws. Click here to view them. -- N.G.