Mark PestronkQ: The new ARC Agent Reporting Agreement takes effect on July 1. Aside from the main changes that have been publicized -- a five-day shortening of the payment date and adoption of the Associate Branch rule -- are there any surprises in the agreement that agency owners should know about?

A: Yes, there are several new items that would be surprises to most owners and managers of ARC-appointed agencies. All of these changes make the agreement even more one-sided than it was before.

First, you will need to submit an annual confirmation of your compliance with ARC's requirements "including, but not limited to, ownership status and other personnel requirements, at a minimum on an annual basis as determined by ARC." On or about the anniversary date of your first ARC appointment, you will need to certify the names of the current owners, officers, directors, ARC management qualifier and ARC Specialist.

So, if your ARC Specialist quit last month and you haven't replaced him, you will clearly need to scramble before the certification deadline. Worse still, if your agency ownership changed some time ago and you never obtained ARC approval of the change of ownership, you will need to get the change approved immediately.

If your agency was once owned by one or more people who were bought out or passed away, and, like many owners, you never got around to filing the change-of-ownership application, you will need to get it done now before you can sign a certification about your agency's ownership.

Second, ARC will be collecting a lot more personal guaranties from agency owners. You must execute a personal guaranty if you have just one bounced draft, one unreported sale, one improperly reported sale or one late report, if, in addition to one of those irregularities, ARC also thinks that your failure "creates a danger of substantial loss to ARC and/or the carriers."

You must also execute a personal guaranty and increase your bond if, within any 12-month period, you have two or more dishonored drafts not covered by the close of the next business day, two or more late sales reports, two declarations of default, or just one default in excess of your bond. If you have one more uncovered bounce, late report or declaration of default during the following 12 months, ARC will terminate you.

These requirements are clearly designed to crack down on marginal agencies. They will probably achieve their purpose by putting those agencies out of business within a year, and other agencies may decide to give up their appointments rather than agree to personal guaranties.

Third, although many agencies would like to prohibit ARC from selling their data to anyone who will pay ARC for it, the new agreement expressly authorizes such sales. In the sentence, "Agent acknowledges that all Transactional Data may be used by Carriers and ARC for processing Transactions, and any other lawful purpose," the last five words are new and allow ARC to sell all your data except personally identifiable financial information.

ARC is kinder and gentler than it was before to agencies that get paid each week by ARC, do not have financial irregularities or need flexibility to expand. But for the rest of the agency community, there is nothing in the new agreement except headaches.

Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].


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