INSTANT TRAVEL AGENTS

INSTANT TRAVEL AGENTS [ Published In The Aviation Quarterly, April 1997 ] By Judge Thomas A. Dickerson1 Professional travel agents are essential for the efficient marketing of air transportation, both domestic and foreign, cruises, hotel accommodations, tour packages, travel insurance and much, much more2. Travel agents, of which there are currently more than 40,000 in the United States, have a special relationship with consumers. " Professionalism and consumer reliance have created a special relationship between consumer and travel agent. Today's travel agent is the consumer's agent and a fiduciary with duties commensurate therewith " 3. Travel agents are held to a high standard of care and are relied upon by consumers. " Travel agents are best viewed as information specialists upon whom consumers rely for the provision of accurate information and the confirmation of travel arrangements. The contemporary travel agent is a professional, holds himself out as a travel expert...and is relied upon much like other information specialists and professionals such as attorneys, doctors and accountants " 4. A recent study5 revealed that travel agents are relied upon by consumers in purchasing travel services from specific suppliers and tour operators, e.g., airlines (60%), package tours (53%), hotels (47%), cruises (38%), destinations (35%) and car rentals (28%). Instant Travel Agents Instant travel agents are non-professionals who purchase travel agent credentials. Travel agent ID cards along with some training are sold by 50 different companies for prices ranging from $485.00 to $7,995.00.6 Some of these companies are involved in illegal pyramid schemes7, educational frauds8, violating State security laws9 and State travel seller statutes.10 The number of instant travel agents is staggering. The International Airlines Travel Agent Network [ " IATAN " ] reported that its 1995 membership stood at 237,405 of which 24,383 ID cards were in the possession of non-professional independent contractors.11 InteleTravel International reported that its 1995 membership stood at 35,000 card holders who generated annual sales of $100 million.12

Consumers At RiskConsumers are at risk from the unprofessionalism of instant travel agents. It is analogous to persons being able to practice medicine or law after purchasing a professional license for $485.00. The proliferation of instant travel agents means that consumers may be dealing with poorly trained and unprofessional travel agents13. In addition, instant travel agents are unlikely to carry errors and omissions insurance14 and surety bonds which professional travel agents often carry to protect themselves, suppliers and clients. Professional Travel Agents At Risk The threat to professional travel agents is very real. Hundreds of thousands of instant travel agents are taking away business without incurring the costs of education, training, accreditation and bonding. More importantly, instant travel agents through incompetence and fraud hurt the professional reputation of serious travel agents. " Widespread circulation of ( ID cards ) retards the industry's struggle to make the public perceive travel agents as professionals. It also dilutes the business with hordes of unqualified do-it-yourselfers eager for a cut rate or other handouts from carriers and hotels. "15 Travel agent organizations have been fighting back, with limited success, by encouraging State Attorney Generals and the Federal Trade Commission to investigate the deceptive business practices of card mills.16

Pyramid SchemesSome of the companies in the business of selling travel agent ID cards may be illegal pyramid schemes.17 On the surface multilevel marketing companies recruit non-professionals to retail products and services from their homes. In reality, what is being sold is the opportunity to recruit new participants and earn a commission from the new recruit's sales and future recruiting efforts18. Such schemes are inherently deceptive19, misleading and illegal in many States.20 In Brown v. Hambric21 Ms. Brown, wanted to become a professional travel agent. Hambric, an authorized representative of NU-Concepts in Travel [ NU-Concepts ] " convinced Brown that the NU-Concepts ` fast start plan ` would provide her with the kind of training and education necessary to become a professional travel agent "22. In return for $475.00 Hambric and NU-Concepts promised to make Ms. Brown an Independent Travel Consultant [ ITC ] and give her professional training and education of its rules and regulations, compensation plan, product information, business practices, sales strategies and ethical behavior. As an ITC Brown would enjoy the perks of the travel industry and earn commissions selling travel. However, NU-Concepts made it clear that recruiting new ITCs was much more lucrative than selling travel. " Or you can make a good deal more money by developing your contacts into Independent Distributors...you teach your contacts- --a firm foundation of 5-7 people...Then, with your help, they each teach 5-7 contacts who teach their contacts...( and so on and so on )..."23. NU-Concepts and Hambric failed to provide Ms. Brown with the support, education and training for which she paid. Specifically, NU-Concepts failed to deliver promised training and supervision while Hambric failed to attend scheduled training sessions, to communicate with NU-Concepts and to stay current with NU-Concepts information. The Court found that Hambric breached his agreement to provide training and education24 and was conducting a pyramid scheme in violation of two of New York's consumer protection statutes25. " There is nothing ` new ` about NU-Concepts. It is an old scheme, simply, repackaged for a new audience of gullible consumers mesmerized by the glamour of the travel industry and hungry for free or reduced cost travel services. Stripped of its clever disguise as a recruiter and educator of outside travel agents, NU-Concepts is nothing more than a pyramid scheme "26. In Loughran v. World Class Network, Inc.,27 a class action by " instant " travel agents charging a pyramid scheme Judge Milks of the Hawaii Circuit Court found that " World Class Network's scheme violates Hawaii's endless chain scheme statute...entitling each Plaintiff to treble damages...and...prohibiting World Class Network...from operating its scheme whereby one can pay valuable consideration for the chance to receive compensation (1) for introducing one or more additional persons into the scheme..."28 In People v. Jetaway Travel Corporation29 the California Attorney General commenced an action against NU-Concepts charging it with operating a pyramid scheme, making numerous misrepresentations30 and violating California's Seller Assisted Marketing Plan Act31 and Seller of Travel Law32. A similar lawsuit was also commenced against World Class Network. State Securities Laws In Hawaii the State Department of Commerce and Consumer Affairs [ Consumer Affairs Department ] recently completed an investigation of yet another travel multilevel marketing firm, World Class Network [ World Class ]. The World Class educational program featured a $495.00 tutorial kit and the opportunity to sell the kits to others and earn commissions of $100.00 per sale. Higher commissions could be earned if investors purchased the tutorial kits in volume. This aspect of the World Class program constituted a security or investment program. The Consumer Affairs Department found that World Class " violated state law by running an investment program without registering under state securities law. "33 and ordered full refunds to all Hawaii residents that had purchased the tutorial kits. Subsequently a consumer class action was commenced charging World Class with " unfair and deceptive practices and ( with operating ) an ` unlawful, endless chain scheme ` "34. World Class was also charged with failing to provide " distributorship services, support, training, benefits, products and commissions "35 to the class. In a recent decision the Honolulu Circuit Court ordered World Class " to stop operating in Hawaii and pay clients triple damages "36. Violation Of State Licensing Statutes Several States have some form of legislation which governs tour operators and travel agents37. These statutes run the spectrum from the innocuous and toothless [ New York38 ] to those that conduct biannual proficiency tests [ Rhode Island39 ], require registration [ e.g., Iowa40, Washington41 & Oregon42 ], establish advertising standards [ e.g., Florida43 & Virginia44 ] and contractual disclosure standards [ e.g., Hawaii45 & Illinois46 ] and require financial security in the form of surety bonding [ e.g., Ohio47 & Washington48 ], escrow accounts [ e.g., California49 & Virginia50 ] and consumer compensation funds [ California51 ]. Recently, the California Attorney General's office commenced an action charging Atlanta, Georgia based Club Atlanta Travel with violating California's Travel Seller Act52 for failing to register as a Travel Seller. " The company seems to be a combination of a ` pyramid scheme and a card mill ` "53

FTC ActionUnder the Federal Trade Commission Act, the FTC has broad regulatory powers with respect to unfair and deceptive trade practices. In recent years the FTC has focused its attention on travel scams such as the Chicago tour operator that offered round trip air transportation to Hawaii for a mere $29.0054. Some 700,000 gullible consumers learned that the offer was conditioned upon purchasing high priced hotel accommodations which covered the actual cost of air transportation. In another scam the FTC shut down a tour operator selling " vacation vouchers " which misrepresented the true cost of the travel services55. Early this year the FTC56 and the New York State Attorney General57 filed suits against Florida direct-marketing companies for mailing tens of millions of deceptive " vacation certificates ". The FTC, clearly, has the authority to investigate companies selling pseudo travel agent credentials with respect to unfair and deceptive business practices58. Conclusion Instant travel agents undermine consumer confidence in professional travel agents who have the experience, training and education necessary to properly service the consumer's travel needs. Both regulatory action and prosecution for deceptive business practices may be necessary to protect consumers who are victimized by companies selling pseudo travel agent credentials. FOOTNOTES1 . Thomas A. Dickerson is a Westchester County Court Judge and the author of Travel Law, Law Journal Press, New York, ( 1981-2000)( updated biannually ) and Class Actions: The Law of 50 States, Law Journal Press, New York, New York ( 1988-2000 ) ( updated annually ).2 . Travel guides and advisors have been around for centuries. See e.g., Friedheim, Travel Agents, Travel Agent Magazine Books, New York, New York ( 1992 ), pp. 4-5 ( " Over the centuries, travelers have been attended by slaves, bond servants, scouts, guides, harbingers, vetturini, ciceroni, marshals of the households, periegetes, forwarding houses, tutors, brokers, pathfinders, frontiersmen, guidebook writers, steamship agents, excursion agents, travel agents, organizers, sales reps, touts, railroad agents, passage agents and others composing a diverse nomenclature. "3 3. See Pellegrini v. Landmark Travel Group, 165 Misc. 2d 589, 595-596, 628 N.Y.S. 2d 1003 ( 1995 ). See also: Second Circuit: Das v. Royal Jordanian Airlines 766 F. Supp. 169 ( S.D.N.Y. 1991 )( travel agent misinformed consumer about being " wait listed "; fiduciary duties ). Seventh Circuit: Karkoni v. American Airlines, Inc., 22 Aviation Cases 17,653 ( N.D. Ill. 1989 )( travel agents are fiduciaries under Illinois law ). State Courts: Arizona: Maurer v. Cerkvenik-Anderson Travel, Inc., 181 Ariz. 294, 890 P. 2d 69 ( 1994 )( student crushed under steel wheels of tour operator's party train to Mazatlan; travel agents and tour operators are fiduciaries ). District of Columbia: Craig v. Eastern Airlines, Inc., 19 CCH Aviation Cases 17,954 ( D.C. Sup. 1985 )( travel agent is fiduciary ). Louisiana: Philippe v. Lloyd's Aero Boliviano, 589 So. 2d 536 ( La. App. 1992 )( failure to advise consumer of dangers of high altitude flying in La Paz, Bolivia ). New Jersey: Rodriquez v. Cardona Travel Bureau, 216 N.J. Super. 226, 523 A. 2d 281 ( 1986 )( travel agent has special skills ). Oklahoma: Douglas v. Steele, 816 P. 2d 586 ( Okla. Ct. App. 1991 )( travel agent is fiduciary ).4 4. See Pellegrini, supra, at 165 Misc. 2d 592.5 5. See Yesawich, Pepperdine & Brown Yankelovich Partners 1996 National Leisure Travel Monitor, Travel Agent ( Apr. 1, 1996 ) p. 1.6 . See Monaghan, A Shopper's Guide To Independent Agent Opportunities, The Intrepid Traveler, New York, N.Y. ( 1995 ).7 . See Brown v. Hambric, 168 Misc. 2d 502, 638 N.Y.S. 2d 873 ( 1995 ).8 8. Id.9 . See Bartlett, World Class Offers Agents Refunds, Travel Weekly ( Apr. 1, 1996 ), p. 6.10 . See ASTA Steps Up the Fight Against Certs and Mills, Travel Agent ( May 27, 1996 ), pp. 2, 7.11 . See Durbin, IATAN Reports 237,405 Agents Hold Its Card, Travel Weekly ( Feb. 15, 1996 ), p. 1. See also Fee & Anolik, The Official Outside Sales Travel Agent Manual, Outside Sales Support Network, Jupiter, Florida ( 1996 ), p. 1 ( " outside sales travel agents are often classified as outside sales agents/independent contractors " ).12 . See Fine, Intele Travel: Is It a New View, or Worldview in Disguise, Travel Agent ( Feb. 19, 1996 ), p. 19 ( " observers are questioning whether the company...is just another variation of an ID card mill..." ).13 . See Brown v. Hambric, supra, at 638 N.Y.S. 2d 874. " To become a professional travel agent...requires years of training and participation in advanced educational programs such as those provided by the Institute of Certified Travel Agents [ ICTA ] and the American Society of Travel Agents [ ASTA ], accreditation by supplier organizations such as the Airlines Reporting Corporation [ ARC ] and the Cruise Lines International Association [ CLIA ], compliance with state and local licensing and registration requirements and obtaining bonding and comprehensive insurance ".14 . For a discussion of travel insurance see Travel Law, supra, at Section 5.08.15 . Friedheim, Progress in the Fight Against Card Mills, Travel Agent ( May 27, 1996 ), p. 24.16 . See ASTA's Fight Against Card Mills Suffers Setbacks on the State Level, Travel Agent ( Jan. 8, 1996 ), p. 6; ASTA Steps Up the Fight Against Certs and Mills, Travel Agent ( May 27, 1996 ), p. 2, 74 ( " ASTA...contacted the National Association of Attorneys General requesting that its members consider legal action against card mill operations. " )17 . See New York Creates A Private Right Of Action To Combat Consumer Fraud: Caveat Venditor, 48 Brooklyn L.R. 509, 558-559, fn 209 ( " Pyramid solicitations are sham money making schemes whereby individuals are induced to participate in a plan for making money by means of recruiting others, with the right to encourage or solicit new memberships in the pyramid passed on as an inducement for others to join. " ).18 . See e.g., SEC v. Steed Industries, Inc., 1974 WL 472 ( N.D. Ill. 1974 ), Fed. Sec. L. Rep. 94,917 ( "...a pyramid promotion or endless chain scheme...is the recruitment of investors...who in form will be distributors of...products but who in fact will devote their efforts almost entirely ( to locating )...other investors...to recruit..." ).19 . See e.g., In Re Omnitrition, 1993 WL 271466 ( N.D. Cal. 1993 ), Fed. Sec. L. Rep. 97,655 ( "...Omnitrition sells distributorships in an endless chain of recruitment. Through slick advertising and personal sales solicitations, Omnitrition misrepresents the likelihood of achieving financial security..." )20 . See e.g., Delaware: State v. Ferro, 1988 WL 39996 ( Del. Super. 1988 ) ( Delaware pyramid scheme statute ). New York: State v. Phase II Systems, Inc., 109 Misc. 2d 598, 440 N.Y.S. 2d 454 ( 1981 )( New York pyramid scheme statute ). North Carolina: Edmisten v. Challenge, Inc., 54 N.C. App. 513, 284 S.E. 2d 333 ( 1981 )( North Carolina pyramid scheme statute ). Virginia: Love v. Durastill of Richmond, 242 Va. 186, 408 S.E. 2d 892 ( 1991 )( Virginia pyramid scheme statute ).21 . See N. 10, supra.22 . Id at 638 N.Y.S. 2d 874.23 . Id at 638 N.Y.S. 2d 875.24 . See e.g., Andre v. Pace University, 161 Misc. 2d 613, 618 N.Y.S. 2d 975 ( 1994 ).25 . Violations of General Business Law Sections 359-fff ( chain distributor schemes ) and 349 ( unfair, deceptive and misleading business practices ).26 . See N. 27, supra.27 . Loughran v. World Class Network, Inc., Civ. No. 96-3134-07, Hawaii Cir. Ct. (MNM).28 . Id., Decision dated September 25, 1996, at p. 2.29 . People v. Jetaway Travel Corporation, California Superior Court, County of San Diego, No. 00708829 ( Mar. 13, 1997 ).30 . Id. The Complaint alleges the following misrepresentations; (1) " that they will adequately train new travel agents ", (2) " that they will pay commissions to agents when they book travel ", (3)" that persons who obtain NU-Concepts travel agent cards will receive special discounts for personal travel expenses ", (4) " can make a great deal of money by introducing others so that they can become independent distributors ", (5)" that they will make refunds " and (6) " creating travel and tours is easy through the use of their booking procedures ".31 . Cal. Bus. & Prof. Code Section 17200.32 . Cal. Bus. & Prof. Code Section 17550.33 . See N. 12, supra.34 . Bartlett, World Class Network Hit With Suit, Travel Weekly ( Aug. 8, 1996 ) p.5.35 . Id.36 . Gould, California and Hawaii Crack Down on Card Mills, Travel Agent, Sep. 23, 1996, p. 126.37 . See Travel Law, supra, at Section 5.07.38 . New York Gen. Bus. L. Section 155.39 . R.I. Rev. L. Ann. Sections 5-52-1 to 5-52-14.40 . Iowa Stat. Section 120.1.6.41 . Wash. Rev. Code Section 19.138.020(1).42 . Ore. Rev. Stat. Section 646.200(7).43 . Fla. Stat. Ann. Section 559.927(a).44 . Va. Stat. Section 59-1-445.45 . Hawaii Rev. L. Section 468L-1.46 . Ill. Ann. Stat. Ch. 121 ½ Section 1855.47 . Ohio Rev. Code Ann. Section 1333.96(E)48 . See N. 37, supra.49 . Cal. Bus. & Prof. Code Section 17550.50 . Va. Stat. Section 1-447.1.51 . Cal. Bus. & Prof. Code Section 17550.43(b).52 . Cal. Bus. & Prof. Code Section 17550 et. Seq.53 . See N. 13, supra.54 . FTC v. World Travel Brokers, Inc., 661 F. 2d 1020 ( 7th Cir. 1988 ); FTC v. World Travel Vacation Brokers, Inc., 761 F. Supp. 68 ( N.D. Ill. 1991 ).55 . FTC v. Amy Travel Service, Inc., 875 F. 2d 554 ( 7th Cir. 1989 ).56 . See Durbin, FTC Sues Fla. Firms for Marketing Deceptive Trip Promotions, Travel Weekly ( Feb. 19, 1996 ) p. 57.57 . People of the State of New York v. Promotional Travel, Inc., N.Y. Sup., Notice of Verified Petition dated April 1, 1996.58 . In March of 1997 the F.T.C. commenced an action against World Class Network which forced it to cease business operations. See FTC Shuts Down Alleged Card Mill World Class, Travel Agent, March 10, 1997, at p. 2. " In its complaint, the FTC alleged that World Class is in violation of the act that prohibits unfair or deceptive acts or practices. According to the complaint, World Class claims that purchasers of its credentials ` can receive discounts and upgrades on their own travel accommodations of the type generally available to travel agents...[But] in numerous instances purchasers cannot receive discounts and upgrades on their own travel accommodations of the type generally available to travel agents because the travel agent identification card provided by World Class Network is not recognized by many travel industry service providers `. According to the FTC, World Class ` represented, directly or by implication, that they provide purchasers with sufficient training and support to open and operate a functioning at-home travel business venture, and that purchasers can reasonably expect to achieve various specific levels of earnings. In truth...defendants' kits do not provide purchasers with sufficient training and support to open and operate a functioning at-home travel business venture, and few purchasers, if any, achieve earnings at or approaching the levels promised ` ".