Hawaii might be the first state to legislate destination club regulation – something that clubs, including Exclusive Resorts, have gone on record as saying they would welcome.

Who’s Been in Talks?

The Department of Commerce and Consumer Affairs have met with both the DCA and ARDA, and is reviewing regulations that could cover disclosure and financial assurances for destination club members.

What seems to be at issue is how secure the financial assurances will be. As you might expect, the tighter the assurance, the higher cost of doing business the clubs will have to incur. But these financial assurances could prevent debacles like the Tanner & Haley bankruptcy, which left members unsure about their membership deposits. Shortly after, Helium Report laid out some primary consumer protection concerns last August.

The Cost of Doing Business

Protections like deposit refund insurance or funds held in escrow will obviously limit a club’s ability to deploy member capital without restriction to purchase new homes – and increase their cost of doing business, which will then be reflected in annual dues.

Some clubs are starting to take the approach that passing the Net Asset Test is enough – being able to show members and regulators on a regular basis that they have the funds and home equity to meet all member refund obligations.

The proposed Senate Bill 697 could pass into law next year. We will see if disclosure is enough for these legislators, or if they want to push for more aggressive measures. In the interim, protect yourself. Do your own due diligence and download our independent Decision Guide to Destination Clubs.