Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred S.B. No. 3204 entitled:

begs leave to report as follows:

The purpose of this measure is to disallow activity desks the option of posting a bond or obtaining an irrevocable letter of credit in lieu of maintaining a client trust account.

Volcano Maui Air Tours, Atlantis Adventures, Ocean Tourism Coalition, Activities and Attractions Association of Hawaii, Safari Aviation, Inc., and SeaSport Cruises, Inc., testified in support of this measure. The Department of Commerce and Consumer Affairs opposed the measure.

Current law requires activity desks to maintain consumer funds in a client trust account, or alternatively, to post a performance bond or obtain an irrevocable letter of credit. This measure eliminates the option of obtaining a bond or irrevocable letter of credit, and requires all activity desks to maintain a client trust account or be subject to license forfeiture.

Your Committee finds that consumer funds are not adequately protected by a bond or irrevocable letter of credit, particularly when coverage thereunder is statutorily capped at $100,000. When substantial sums of consumer funds are at risk, as in the case of the $3,000,000 in activity provider funds held by American Hawaii Cruises when it claimed bankruptcy, a bond or letter of credit worth, at the most, $100,000, offers little consumer protection. This measure will help to ensure that moneys paid by consumers are segregated from other funds and maintained for the benefit of consumers.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 3204 and recommends that it pass Second Reading and be placed on the calendar for Third Reading.