Q: The new ARC agreement that will take effect on Jan. 1 has been heralded as providing agencies with "more flexibility overall and getting rid of rules that were adding a lot of overhead and expense to their businesses." Since ARC is owned and controlled only by the airlines, isn't there a downside to the new draft agreement, too?
A: It is true that the new draft generally reflects ARC's kinder and gentler approach to agencies, and it is also true that ARC has listened to agencies and incorporated new ideas and useful changes. However, agencies also need to beware of the numerous ways in which ARC has made life harder for agencies, especially those that get into financial binds.
Here are some of the ways in which ARC will tighten the screws:
• First, although most agencies will probably benefit by having the ARC payment date moved up by five calendar days, from a Wednesday to the previous Friday, because ARC pays them instead of vice versa, agencies whose customers pay mostly by check will really need to scramble.
For example, if an agency that is open on Saturday takes an out-of-town check and issues a ticket on the same day, the agency will deposit the check on Monday, and there is no assurance that the check will clear the bank by the time of the ARC draft just four business days later.
To avoid bounced drafts that trigger ARC enforcement action, those agencies will need overdraft protection or a large cash cushion, or refrain from issuing a ticket until the check clears. Many agencies cannot afford such arrangements or sell successfully with such a policy, so many of those will probably give up their ARC appointments or go out of business.
• Second, even though ARC will make it harder for agencies to avoid bounced ARC drafts, ARC will be stepping up enforcement for agencies that have multiple bounces. Now, you will need to raise your bond and post a personal guaranty if you have just two bounced drafts instead of three, and ARC "will terminate" your agency if you have just one more bounce, late report or default in the next year.
• Third, ARC will eliminate the rule that allows agencies with strong, CPA-prepared balance sheets to reduce their bonds from the $70,000 maximum to the $10,000 minimum.
• Fourth, although ARC will continue to require a maximum bond of only $70,000, regardless of a single agency's size, it will increase the required maximum to $150,000 for agencies that have the new location category of "Associate Branch." For example, if Agency A owns all the stock of Agency B, then Agency A will need up to a $150,000 bond in order for ARC to list Agency B as Agency A's Associate Branch.
I will continue this list in a future column.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].
Correction: This column originally stated that one of the new anti-agent clauses was the one that stated, "all transactions that occur under this Agreement will be deemed to occur within the County of Arlington, Va.," as this meant that you have no hope of getting a suit by ARC transferred to your home state. However, an ARC executive pointed out that the information came from the nonfinal version, and that the final one states that "all transactions that occur under this Agreement will be deemed to occur within the United States," which is not an anti-agent clause.