Q: Early this month, the California attorney general filed suit against YTB, seeking tens of millions of dollars in fines and restitution to consumers. I see that the attorney general accuses YTB of violating last year's anti-card-mill amendments to the California Seller of Travel Law.
What are the exact activities that the attorney general claims to be violations? How do those activities compare with host agencies' activities? Could my host agency get fined or shut out of California?
A: The nine-page complaint focuses mainly on the California laws that prohibit pyramid schemes ("illegal endless chain schemes"), false advertising and a couple of other consumer-protection laws that do not focus specifically on travel. The alleged violations of the Seller of Travel laws take up just four sentences.
The complaint says: "Defendants operate a 'travel card mill' to permit and encourage consumers to hold themselves out as sellers of travel through the use of credentials purporting to identify them as professional travel agents who sell travel and are thus eligible for discounts, upgrades or other courtesies. Defendants, in violation of Business and Professions Code section 17550.26, sell a Travel Discount Business Program to consumers ineligible to join and without making required disclosures."
The law does not define a "travel card mill," so it was strange of the attorney general to use the term. In any case, what the attorney general is getting at is that YTB allegedly sells a credential entitling buyers to a travel-industry discount, which is a violation of California law except in very limited circumstances. Unfortunately, the court complaint does not specify exactly what activities constitute the selling of credentials, as opposed to merely offering a host-agency program that lets you use the host's ARC, IATA or CLIA number in your bookings.
The complaint says: "Defendants, in violation of California Business and Professions Code section 17550.27, sell a Travel Discount Program that illegally requires an annual charge in excess of $150 and that fails to provide purchasers their right of cancellation."
This allegation focuses on the lesser-known part of the 2007 amendments prohibiting every business from selling any discount program or club membership to travelers for more than $150, unless the program meets exceptionally stringent requirements. This part of the law, which goes far beyond card mills, needs to be clarified by the courts, or it will have the effect of stamping out many bona fide travel clubs.
The attorney general is on surer footing in its last allegation: "Defendants, in violation of California Business and Professions Code section 17500 et seq., make untrue or misleading representations and fail to make material disclosures." The California law requires registered travel sellers to make certain written disclosures to all clients, covering such subjects as refunds. If YTB did not make the disclosures, this part of the attorney general's case might be the easiest.
My guess is that the YTB case will not end up teaching us much about what is prohibited under the 2007 amendments or what a host agency or travel club can do. Since the pyramid-scheme allegation and other, non-travel-business allegations will be the central parts of the case, any settlement or court precedent will probably focus on those parts.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email Pestronk at firstname.lastname@example.org.