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SF 420

as introduced - 83rd Legislature (2003 - 2004) Posted on 12/15/2009 12:00am

KEY: stricken = removed, old language.
underscored = added, new language.
  1.1                          A bill for an act 
  1.2             relating to consumer protection; regulating travel 
  1.3             clubs; prescribing penalties and remedies; amending 
  1.4             Minnesota Statutes 2002, section 325G.51; proposing 
  1.5             coding for new law in Minnesota Statutes, chapter 
  1.6             325G; repealing Minnesota Statutes 2002, section 
  1.7             325G.50. 
  1.9      Section 1.  [325G.491] [DEFINITIONS.] 
  1.10     Subdivision 1.  [SCOPE.] For purposes of sections 325G.491 
  1.11  to 325G.499, the terms in subdivisions 2 to 9 have the meanings 
  1.12  given them. 
  1.13     Subd. 2.  [ACCOMMODATIONS.] "Accommodations" means any real 
  1.14  property improvement provided by the travel club to its members 
  1.15  for lodging purposes, including, without limitation, 
  1.16  condominiums, hotels, motels, or motor courts.  
  1.17     Subd. 3.  [CARRIER.] "Carrier" means any person engaged in 
  1.18  the business of transporting persons for hire.  
  1.19     Subd. 4.  [CONTRACT.] "Contract" is synonymous with "travel 
  1.20  services agreement." 
  1.21     Subd. 5.  [OFFER OR OFFERING.] "Offer" or "offering" means 
  1.22  any act to sell, solicit, induce, advertise, or execute a travel 
  1.23  services agreement. 
  1.24     Subd. 6.  [PURCHASER.] "Purchaser" means any person who 
  1.25  enters into an agreement in whole or in part within this state 
  1.26  with a travel club for travel services. 
  2.1      Subd. 7.  [TRAVEL CLUB.] "Travel club" means a for-profit 
  2.2   organization that provides, in return for either an advance fee 
  2.3   for membership or an annual charge for membership of more than 
  2.4   $100, the privilege for its members or participants to arrange 
  2.5   or obtain future travel services through or from the 
  2.6   organization.  The term excludes credit card issuers whose cards 
  2.7   are honored at any one time by 100 or more merchants, other than 
  2.8   the issuer. 
  2.9      Subd. 8.  [TRAVEL SERVICES.] "Travel services" means 
  2.10  transportation by carrier, accommodations, rental of motor 
  2.11  vehicles, or any other service related to travel.  For purposes 
  2.12  of this chapter, the term does not include investments in time 
  2.14     Subd. 9.  [TRAVEL SERVICES AGREEMENT.] "Travel services 
  2.15  agreement" means the agreement executed in whole or in part in 
  2.16  this state between the travel club and the purchaser of the 
  2.17  membership in the club and does not include arrangements or 
  2.18  agreements for specific travel transportation, accommodation, or 
  2.19  other specific services.  
  2.20     Sec. 2.  [325G.492] [REGISTRATION; FEES.] 
  2.21     A travel club shall not offer or cause to be executed in 
  2.22  this state by the purchaser any travel services agreement unless 
  2.23  the travel club at the time of the offering, or execution of the 
  2.24  agreement has been properly registered with the attorney 
  2.25  general.  The registration must (1) disclose the address, 
  2.26  ownership, and nature of business of the travel club and (2) be 
  2.27  accompanied by an annual fee of $350 per registration and annual 
  2.28  renewal. 
  2.29     Sec. 3.  [325G.493] [BOND OR LETTER OF CREDIT.] 
  2.30     Subdivision 1.  [REQUIREMENT.] Every travel club, before 
  2.31  entering into a travel services agreement with a purchaser of 
  2.32  travel services, shall file and maintain with the attorney 
  2.33  general a bond with corporate surety from a company authorized 
  2.34  to transact business in the state, or a letter of credit from a 
  2.35  bank insured by the Federal Insurance Deposit Corporation, or 
  2.36  cash in the amounts indicated below: 
  3.1             Number of Contracts          Amount of Cash, Bond,
  3.2                                          or Letter of Credit
  3.3                   0 to 1,500                    $60,000
  3.4               1,501 to 1,750                    $70,000
  3.5               1,751 to 2,000                    $80,000
  3.6               2,001 or more                    $100,000
  3.7      Subd. 2.  [PURPOSE.] The bond or letter of credit required 
  3.8   by subdivision 1 must be in favor of the state of Minnesota for 
  3.9   the benefit of any purchaser who is damaged by any violation of 
  3.10  this chapter.  
  3.11     Subd. 3.  [AGGREGATE LIABILITY.] The aggregate liability of 
  3.12  the bond or letter of credit to all persons for all breaches of 
  3.13  the conditions of the bond or letter of credit may not exceed 
  3.14  the amount of the bond or letter of credit.  The bond or letter 
  3.15  of credit must not be canceled or terminated except with the 
  3.16  consent of the attorney general.  Bonds may be withdrawn by 
  3.17  giving 60-day advance written notice to the attorney general, 
  3.18  thereby releasing the surety from accruing future liability 
  3.19  beyond the effective date of withdrawal.  The withdrawal does 
  3.20  not release the surety or otherwise cancel or terminate any 
  3.21  liability existing at the time of the effective date of the 
  3.22  withdrawal. 
  3.23     Sec. 4.  [325G.494] [ESCROW OF DEPOSITS.] 
  3.24     Subdivision 1.  [REQUIREMENTS.] Any deposit made in 
  3.25  connection with the execution of a travel services agreement 
  3.26  must be held in escrow.  All cash deposits must be held in a 
  3.27  separate bank account labeled and designated solely for that 
  3.28  purpose.  
  3.29     The escrow account must be insured by an instrumentality of 
  3.30  the federal government and located in Minnesota.  All deposits 
  3.31  must be held in escrow until (1) delivered to the travel club 
  3.32  upon expiration of the purchaser's cancellation period, provided 
  3.33  the purchaser's right of cancellation has not been exercised, 
  3.34  (2) delivered to the travel club because of purchaser's default 
  3.35  under the travel services agreement, or (3) refunded to the 
  3.36  purchaser.  Failure to establish escrow accounts or to make the 
  4.1   deposits as required by this section is prima facie evidence of 
  4.2   willful violation of this section.  
  4.3      Subd. 2.  [DISCLOSURE.] The travel club shall disclose in 
  4.4   the travel services agreement that the deposit may not be held 
  4.5   in escrow after expiration of the cancellation period and that 
  4.6   the deposit is not protected as an escrow after expiration of 
  4.7   the cancellation period.  This disclosure must include a 
  4.8   statement of whether or not the travel club reserves the option 
  4.9   to sell or assign any promissory note given by a purchaser to 
  4.10  another entity, whether or not the entity is affiliated with the 
  4.11  travel club.  Both disclosures must appear in boldface type of a 
  4.12  minimum size of ten points.  
  4.13     Subd. 3.  [FIDELITY BOND.] The travel club shall post a 
  4.14  fidelity bond, written so as to protect all deposits escrowed 
  4.15  pursuant to subdivision 1, in favor of all purchasers.  The bond 
  4.16  must be in an amount equal to the total of the deposits in 
  4.17  escrow at any given time or $25,000, whichever is greater.  The 
  4.18  bond must be filed with the attorney general and must be 
  4.19  maintained for so long as the travel club offers travel services 
  4.20  in Minnesota.  The bond must be with a surety company authorized 
  4.21  to do business in Minnesota.  The travel club may post cash in 
  4.22  lieu of the bond.  
  4.23     Sec. 5.  [325G.495] [TRAVEL SERVICES AGREEMENT; DISCLOSURE; 
  4.25     Subdivision 1.  [CONTENTS.] The travel services agreement 
  4.26  must contain a written disclosure of all limitations on and 
  4.27  terms of the membership and must be provided to the purchaser at 
  4.28  the time the agreement is executed.  The disclosure must clearly 
  4.29  and conspicuously include:  
  4.30     (1) the name, business address, and telephone number of the 
  4.31  travel club; 
  4.32     (2) the amount due, the date of payment, the purpose of the 
  4.33  payment, and an itemized statement of the balance due, if any; 
  4.34     (3) a detailed description of any other service provided in 
  4.35  conjunction with the agreement; 
  4.36     (4) the conditions, if any, upon which the travel services 
  5.1   agreement or membership in the travel club may be canceled and 
  5.2   the rights and obligations of all parties in the event of a 
  5.3   cancellation; and 
  5.4      (5) a description of all contingencies, limitations, or 
  5.5   conditions of the agreement. 
  5.6      Subd. 2.  [RIGHT TO CANCEL.] The purchaser may cancel the 
  5.7   travel service agreement until midnight of the seventh calendar 
  5.8   day after execution of the contract by use of the form 
  5.9   prescribed in subdivision 3; however, notice of cancellation 
  5.10  need not take the form prescribed and is sufficient if it 
  5.11  indicates the intention of the purchaser not to be bound.  
  5.12  Notice of cancellation, if given by mail, is considered given 
  5.13  when deposited in a mailbox, properly addressed, and postage 
  5.14  prepaid.  If the seventh calendar day falls on a Sunday or legal 
  5.15  holiday, then the right to cancel the travel service agreement 
  5.16  expires on the day immediately following that Sunday or legal 
  5.17  holiday.  
  5.18     Subd. 3.  [NOTICE OF CANCELLATION.] The written disclosure 
  5.19  must include, in addition to the requirements of subdivisions 1 
  5.20  and 2, the following statement which must appear immediately 
  5.21  above the buyer's signature under the conspicuous caption, 
  5.22  "BUYER'S NONWAIVABLE RIGHT TO CANCEL," which caption must be 
  5.23  printed in no less than 14-point, bold-faced type: 
  6.1      (Name of Seller)            AT        (Address of Seller)
  6.2      .........................          ........................
  6.3      .........................          NOT LATER THAN 
  6.4          Place of Business              MIDNIGHT OF THE SEVENTH 
  6.5      .........................          DAY AFTER RECEIPT OF 
  6.6      .........................          THIS DISCLOSURE 
  6.7               (Date) 
  6.9               (Date) 
  6.10                                        ..........................
  6.11                                        (Purchaser's Signature) 
  6.12     Subd. 4.  [REFUND.] Within 45 days after notice of 
  6.13  cancellation is received, the travel club shall refund to the 
  6.14  purchaser any payments made by the purchaser pursuant to the 
  6.15  travel services agreement.  However, the travel club may retain 
  6.16  payments made for specific travel services utilized.  The refund 
  6.17  may be made by crediting the purchaser's credit card account if 
  6.18  a credit card was used to make a payment and if the travel club 
  6.19  informs the purchaser in writing that the credit card account 
  6.20  has been credited.  
  6.21     Subd. 5.  [RIGHT TO CANCEL MAY NOT BE WAIVED.] The right of 
  6.22  cancellation afforded the purchaser by this section is 
  6.23  nonwaivable and any provision in any instrument to the contrary 
  6.24  is unenforceable.  
  6.25     Sec. 6.  [325G.496] [PUBLIC OFFERING STATEMENT.] 
  6.26     Subdivision 1.  [CONTENTS.] The travel club shall prepare 
  6.27  and distribute to any prospective purchaser, before a travel 
  6.28  services agreement is executed by the propective purchaser, a 
  6.29  public offering statement that discloses fully and accurately 
  6.30  the characteristics of the travel club and its travel services 
  6.31  and the membership offered.  The prospectus must inform 
  6.32  prospective purchasers of all material circumstances affecting 
  6.33  the travel club and its travel services.  The proposed public 
  6.34  offering statement must be filed with the attorney general and 
  6.35  must be in a form prescribed by the attorney general.  The 
  6.36  prospectus must include the following to the extent applicable: 
  7.1      (1) the name and principal address of the travel club, 
  7.2   including: 
  7.3      (i) the name, principal occupation, and address of every 
  7.4   director, partner, or trustee of the travel club; 
  7.5      (ii) the name and address of each person owning or 
  7.6   controlling an interest of 20 percent or more in the travel 
  7.7   club; 
  7.8      (iii) the particulars of any indictment, conviction, 
  7.9   judgment, decree, or order of any court or administrative agency 
  7.10  against the travel club for violation of a federal, state, 
  7.11  local, or foreign country law or regulation in connection with 
  7.12  activities relating to the rendition of travel services; 
  7.13     (iv) a statement of any unsatisfied judgments against the 
  7.14  travel club, the status of any pending suits involving the 
  7.15  rendition of travel services to which the travel club or any 
  7.16  general partner, executive officer, director, or majority 
  7.17  stockholder thereof is a defending party, and the status of any 
  7.18  pending suits of significance to the travel club; and 
  7.19     (v) the name and address of the travel club's agent for 
  7.20  service of process; 
  7.21     (2) a general description of the travel services offered by 
  7.22  the travel club which are made available to purchasers; 
  7.23     (3) a general description of the travel club and its more 
  7.24  significant features including without limitation the duration 
  7.25  of membership, the types of membership offered, all fees, costs, 
  7.26  and charges imposed on the purchaser, and any provision for its 
  7.27  cancellation by the purchaser other than by default; 
  7.28     (4) provisions, if any, that have been made by the travel 
  7.29  club for fulfilling the demand of the purchaser for 
  7.30  accommodations in lodgings; 
  7.31     (5) if the travel club's new worth is less than $500,000, a 
  7.32  copy of the travel club's current audited balance sheet; if the 
  7.33  club's new worth exceeds this amount, a statement by the travel 
  7.34  club that its equity exceeds $500,000; 
  7.35     (6) any initial or special fee due from the purchaser for 
  7.36  membership in the travel club together with a description of the 
  8.1   purpose and method of calculating the fee; 
  8.2      (7) a general description of any financing offered by or 
  8.3   available through the travel club; 
  8.4      (8) a statement that the purchaser has a right to cancel 
  8.5   the travel service agreement directing the purchaser to see the 
  8.6   travel services agreement for the particulars of the right of 
  8.7   cancellation; 
  8.8      (9) any restraints on alienation of the travel club 
  8.9   membership by the purchaser; 
  8.10     (10) a description of any insurance coverage provided for 
  8.11  the benefit of the purchaser; 
  8.12     (11) any services which the travel club provides or expense 
  8.13  it pays and which it expects may become at any subsequent time 
  8.14  an expense of the purchaser and which is to be paid thereby; 
  8.15     (l2) a description of the terms of the deposit escrow 
  8.16  requirements, including a statement that deposits may be removed 
  8.17  from escrow at the termination of the cancellation period; 
  8.18     (13) any other information required by the attorney general 
  8.19  to assure full and fair disclosure to prospective purchasers; 
  8.20  and 
  8.21     (14) a statement, expressed in terms of a percentage, of 
  8.22  the number of purchasers who applied for accommodations from the 
  8.23  travel club during the preceding year in contrast to the total 
  8.24  number of purchasers who actually received such accommodations 
  8.25  for the same preceding year.  For purposes of calculation, an 
  8.26  application is treated as only one application notwithstanding 
  8.27  that the purchaser contemporaneously requests accommodations at 
  8.28  a number of different real property improvements.  The statement 
  8.29  must be prepared by an independent certified public accounting 
  8.30  firm and may take the form of an exhibit to the public offering 
  8.31  statement. 
  8.33  prospective purchaser of a travel club membership is offered the 
  8.34  opportunity to subscribe to or participate in any time-share 
  8.35  exchange program, the public offering statement must include as 
  8.36  an exhibit or supplement, the disclosure document prepared by 
  9.1   the exchange company and a brief narrative description of the 
  9.2   exchange program which must include the following:  
  9.3      (1) a statement of whether membership or participation in 
  9.4   the program is voluntary or mandatory; 
  9.5      (2) the name and address of the exchange company together 
  9.6   with the names of the principal officers and all directors of 
  9.7   the exchange company; 
  9.8      (3) a statement of whether the exchange company or any of 
  9.9   its officers or directors are holders of a ten percent or 
  9.10  greater interest in the travel club; 
  9.11     (4) a statement of whether the travel club or any of its 
  9.12  officers or directors are holders of a ten percent or greater 
  9.13  interest in an exchange company; 
  9.14     (5) a statement that the purchaser's contract with the 
  9.15  exchange company is a contract separate and distinct from the 
  9.16  purchaser's contract with the travel club; and 
  9.17     (6) a brief narrative description of the procedure whereby 
  9.18  exchanges are conducted. 
  9.19     Subd. 3.  [MATERIAL CHANGE AMENDMENTS.] The travel club 
  9.20  shall amend the public offering statement to reflect any 
  9.21  material change in the travel club membership.  The travel club 
  9.22  shall file with the attorney general the public offering 
  9.23  statement amended to reflect any material change.  The attorney 
  9.24  general may at any time require the travel club to alter or 
  9.25  supplement the form or substance of the public offering 
  9.26  statement to assure full and fair disclosure to prospective 
  9.27  purchasers.  
  9.28     The following events are not considered to be a material 
  9.29  change necessitating an amendment to the public offering 
  9.30  statement:  
  9.31     (1) a change correcting spelling, grammar, omissions, or 
  9.32  other similar errors not affecting the substance of the public 
  9.33  offering statement; 
  9.34     (2) a change in the fees, dues, or assessments of the 
  9.35  purchasers or other similar recurring expense items; 
  9.36     (3) a change which is an aspect or result of the orderly 
 10.1   development, operation, or management of the travel club in 
 10.2   accordance with the travel services agreement, including, 
 10.3   without limitation, the addition or deletion of accommodations, 
 10.4   transportation, or other service related to travel; 
 10.5      (4) a change resulting from the adoption of a new budget; 
 10.6      (5) a change occurring in the issuance of an exchange 
 10.7   company's updated annual report or disclosure documents if upon 
 10.8   its receipt by the travel club it begins distributing it in lieu 
 10.9   of all others; and 
 10.10     (6) a change in the ownership of the travel club, provided 
 10.11  the change affects less than an ownership interest of 20 percent.
 10.12     Sec. 7.  [325G.497] [PROHIBITED PRACTICES BY TRAVEL CLUB.] 
 10.13     It is unlawful for any travel club to engage in any or all 
 10.14  of the following practices:  
 10.15     (1) offer any other type of promotional inducement where 
 10.16  the cost of the package equals or exceeds the cost which would 
 10.17  have been incurred without the travel club membership; 
 10.18     (2) misrepresent the type or size of aircraft, vehicle, 
 10.19  ship, or train; time of departure or arrival; points served; 
 10.20  route to be traveled; stops to be made; total trip-time from 
 10.21  point of departure to destination; type or size of lodging or 
 10.22  other accommodation; availability of lodging or other 
 10.23  accommodation; or other services available, reserved, or 
 10.24  contracted for in connection with any trip, tour, or other 
 10.25  travel services, unless the misrepresentation resulted from a 
 10.26  reasonable belief as to the services available based upon 
 10.27  representations made by the person offering the services; 
 10.28     (3) misrepresent the fares and charges for transportation 
 10.29  or services in connection with the transportation or services, 
 10.30  unless the misrepresentation resulted from a reasonable belief 
 10.31  as to the fares and charges applicable based upon 
 10.32  representations made by the person offering the services; 
 10.33     (4) misrepresent that special priorities for reservations 
 10.34  are available when the special considerations are in fact 
 10.35  granted to members of the public generally; 
 10.36     (5) sell transportation to any person on a reservation or 
 11.1   charter basis for specified space, flight, or time or represent 
 11.2   that the definite reservation or charter is or will be available 
 11.3   or has been arranged, without a binding commitment with a 
 11.4   carrier for the furnishing of the definite reservation or 
 11.5   charter as represented or sold; 
 11.6      (6) sell or issue tickets or other documents to be 
 11.7   exchanged or used for transportation if the tickets or other 
 11.8   documents will not be or cannot be legally honored by carriers 
 11.9   for transportation; 
 11.10     (7) misrepresent the requirements that must be met by a 
 11.11  person in order to qualify for charter or group fare rates, 
 11.12  unless the misrepresentation resulted from a reasonable belief 
 11.13  as to the requirements applicable based upon representations 
 11.14  made by the person offering the charter or group fare; 
 11.15     (8) offer accommodations in lodgings when the travel club 
 11.16  has no written evidence of its legal right to possession of the 
 11.17  lodgings; or 
 11.18     (9) use in any offering, advertisement, or promotion of any 
 11.19  type or description the following terms:  "time-share," 
 11.20  "vacation ownership," "interval ownership," "time-share benefit,"
 11.21  or "incidental benefit." 
 11.22     Sec. 8.  [325G.498] [INVESTIGATIONS.] 
 11.23     The attorney general may, with respect to a travel club or 
 11.24  travel services agreements:  
 11.25     (1) make necessary public and private investigations within 
 11.26  or without this state to determine whether any person has 
 11.27  violated, or is about to violate, the provisions of this 
 11.28  chapter; 
 11.29     (2) require or permit any person to file a statement in 
 11.30  writing, under oath or otherwise as the attorney general 
 11.31  determines, as to all facts and circumstances concerning the 
 11.32  matter under investigation; 
 11.33     (3) administer oaths or affirmations and, upon motion or 
 11.34  upon request of any party, may subpoena witnesses, compel their 
 11.35  attendance, take evidence, and require the production of any 
 11.36  matter that is relevant to the investigation, including the 
 12.1   existence, description, nature, custody, condition, and location 
 12.2   of any books, document, or other tangible things; the identity 
 12.3   and location of persons having knowledge of relevant facts; or 
 12.4   any other matter reasonably calculated to lead to the discovery 
 12.5   of material evidence.  
 12.6      Sec. 9.  [325G.499] [PRODUCTION OF RECORDS.] 
 12.7      Every travel club, upon written request of the attorney 
 12.8   general, shall make available to the attorney general its 
 12.9   travel-services records for inspection and copying to enable the 
 12.10  attorney general to reasonably determine compliance with this 
 12.11  chapter.  Every club promoter shall maintain a true copy of each 
 12.12  agreement between the travel club and a purchaser.  A club 
 12.13  promoter shall maintain each agreement for its term plus two 
 12.14  years. 
 12.15     Sec. 10.  Minnesota Statutes 2002, section 325G.51, is 
 12.16  amended to read: 
 12.17     325G.51 [PENALTIES; REMEDIES.] 
 12.18     A person who violates section 325G.50 sections 325G.491 to 
 12.19  325G.499 is subject to the penalties and remedies provided in 
 12.20  section 8.31. 
 12.21     Sec. 11.  [REPEALER.] 
 12.22     Minnesota Statutes 2002, section 325G.50, is repealed.