Photo credit: Ken LundBy Daniel Zim
The California Seller of Travel Program which is administered by the state's Office of the Attorney General has introduced a procedure earlier this year which effectively exempts hundreds of travel agencies from the requirement of having to maintain client trust accounts or surety bonds. Financial security is not necessary if the travel business never deposits or retains funds from California clients and client payments are made by credit card as a pass-through transaction with the supplier listed as the merchant of record.
In offering this procedural exemption, the Attorney General's Office has adopted a more expansive interpretation of the financial security provisions of the Seller of Travel Law. The relevant section of the law that addresses pass-through credit card payments to suppliers states as follows:
The seller of travel is not required to comply with the direct deposit requirement [for trust accounts] set forth in subdivision (b) if all of the following apply:
(1) The payment is made by credit card.
(2) The seller of travel does not deposit, negotiate, or factor the credit card charge or otherwise seek or obtain payment of the credit card charge or the crediting of the amount of the credit card charge to any account over which the seller of travel has any control.
(3)(A) If the charge includes transportation, the carrier that is to provide the transportation processes the credit card charge.
(B) If the charge is only for services, the provider of services processes the credit card charge.
See California Business and Professions Code § 17550.15(j).
The Attorney General's Office previously applied the pass-through credit card payment exemption on a per transaction basis. But now sellers of travel can become categorically exempt from the trust and surety bond requirements if they attest in an affidavit that they do not collect customer deposits. The Seller of Travel Program has made a standard affidavit available on its website under Form 750. The Attorney General's Office first circulated the form on January 20, 2014 without publicly announcing its adoption of the new procedure.
Compliance with the voluminous, 17,000-word Seller of Travel Law can often seem like a daunting process for lawyers and clients alike. However, by introducing Form 750, the Attorney General's Office has lifted a significant burden on hundreds of travel businesses that are now eligible for this financial security exemption. Travel firms that are looking into registering in California for the first time should determine if they are eligible for the financial security exemption. Travel businesses that are already registered as sellers of travel in California may want to consult legal counsel to determine whether they, too, qualify for the Form 750 exemption which would permit them to close trust accounts or redeem surety bonds.
