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Regulators Considering Introducing New Rules For Travel Agents

Published on Nov 2 2021 2:00 PM in General Industry tagged: Commission for Aviation Regulation / Travel Agents / Trailfinders / tour operators / Department of Transport

Regulators Considering Introducing New Rules For Travel Agents

As reported by The Irish Times, regulators are considering introducing new rules requiring travel agents to put customers' cash in separate accounts as a safeguard against insolvency. Travellers' P...

As reported by The Irish Times, regulators are considering introducing new rules requiring travel agents to put customers' cash in separate accounts as a safeguard against insolvency.

Travellers' Protection Fund

Taxpayers are reportedly supporting the travellers' protection fund, used by the Commission for Aviation Regulation to compensate customers of insolvent holiday firms, when the companies' insurance does not cover the cost.

Next year, the commission and the government reportedly plan to restart a review of both the fund and the insurance schemes, which was reportedly suspended when COVID-19 restrictions froze travel in early 2020.

One of the options set out in a document submitted to the government by the commission is reportedly to require travel agents to put cash paid by customers for holidays into client trust accounts.

Under this system, travel agents will reportedly only be able to draw the cash to pay for the services for which their customers have paid.

They reportedly will not be able to use it for day-to-day spending.

The regulator reportedly acknowledges that while trust accounts would protect customers' funds, "a backup fund would be required to cover repatriations£.

The commission is reportedly also weighing a pooled system, where each travel agent or tour operator pays a levy per customer.

This reportedly then goes into a common pool used to cover the cost of any insolvencies, reportedly eliminating the need for insurance.

The UK reportedly takes a similar approach.

Bonds

Commission licensing rules reportedly require travel agents to put up bonds - a type of insurance - amounting to 4% of turnover - to compensate customers in case of an insolvency.

Tour operators reportedly must put up bonds equivalent to 10% of turnover.

Where a company goes out of business and the bond is not enough to compensate its customers, the regulator reportedly uses the travellers' protection fund to make up the difference.

Industry contributions reportedly originally funded this, but the remaining €1.8 million in the fund reportedly now comes from taxpayers via the Department of Transport.

The department reportedly confirmed recently that it would put aside €5 million next year as a contingency in case there was not enough cash in the fund to meet any calls on it.

It reportedly put aside €10 million for the fund this year, but so far none of that cash has been used. The department reportedly returns any money not called on by the fund to the exchequer at the end of the year.

The travellers' protection fund reportedly peaked at €7.5 million in 2007-2008, but subsequent payouts, including the high-profile Lowcostholidays failure, reportedly depleted this to €1.8 million by 2017.

The falling balance reportedly prompted the commission's review of both the fund and the bonding scheme. The state reportedly had not sought industry contributions to the protection fund since the 1980s.

"Inadequate"

Travel agent Trailfinders was reportedly one of several businesses that gave the commission feedback during the review.

Trailerfinfers Ireland managing director Dave Hayeems reportedly said that the company already operates its own client trust accounts.

He reportedl says, "Trailfinders are bonded by the Commission for Aviation Regulation, which is a condition of our licence, but the bond is superseded by our financial model."

Hayeems reportedly dubs the current bonding system as "woefully inadequate", reportedly arguing that it effectively allows travel agents to borrow from customers, masking any undercapitalisation.

His company reportedly told the commission that an increase in sales diluted the bonds, while the proportion of turnover demanded was too low.

He reportedly says, "In the event of failure the bond doesn't cover the value of forward bookings. Recourse is then made to the travellers' protection fund.

"The fact that the travellers" protection fund is now empty, is damning evidence that the current bonding system doesn't work."

© 2021 Hospitality Ireland – your source for the latest industry news. Article by Conor Farrelly. Click subscribe to sign up for the Hospitality Ireland print edition.

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