CAA warned ‘shadow bonding’ will delay risk-based Atol scheme

The CAA has been warned there won’t be progress towards a risk‑based Atol scheme if merchant acquirers are forced to continue ‘shadow bonding’ to cover refunds to customers who made credit card bookings when an Atol holder fails.

Merchant acquirers process card payments and the CAA typically directs consumers with credit card bookings to the acquirers when there is a failure because the payments are protected under Section 75 of the Consumer Credit Act.

That leads acquirers to seek bonds or withhold payments to cover the value of bookings.

The CAA is preparing a consultation this autumn on reforms that are likely to include replacing the current £2.50 Atol Protection Contribution (APC) with a variable rate based on an assessment of the risk of a business or the value of its bookings.

An initial CAA consultation on Atol reform last year found little industry consensus on the way forward other than agreement on the need for change and majority acceptance of a move to a risk-based APC.

Speaking at an Atol Reform round-table at the recent ITT Conference, Will Plummer, chief executive of financial services firm Trust My Group, said the financial sector’s confidence in travel must be restored.

Speaking at the ITT Conference in Istanbul this month, Plummer asked: “Why are there standard Atols with no collateral and shadow bonding that falls back on the acquirer?”

He said: “I have sympathy with the CAA. Travel is not simple. It’s multifaceted with multiple players. But the bottom line is there is not just Atol risk. It grieves me that when we’re trying to get merchant acquirers back into the market, we’re charging the £2.50 [APC] and then falling back on Section 75.”

Plummer added: “We’re coming from a setup that has been around for a long time, but Covid and the Thomas Cook and Monarch failures have revealed how fragile it is.”

However, CAA group director of consumers and markets Paul Smith said: “It’s not just the risk of failure, it’s the impact of failure. Over time, I wouldn’t say the risk of failure is particularly different in different parts of the market. We’ve seen failures at the smaller end, medium end and at the bigger end.

We’re trying to find an approach based on outcome and not unduly prescribe the means by which each company must do business.”

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