Since the creation of the Association of Independent Tour Operators’ Aito Trust in 1990, I have been involved in many negotiations between merchant acquirers (who do the donkey work on credit card processing) and bond obligors/government-approved bodies – banks, insurance companies, Abta, Aito Trust or the Civil Aviation Authority (CAA).
The merchant acquirers work on minuscule margins and have to absorb any refunds to consumers under the 1975 Consumer Credit Act. As you can imagine, paying out hundreds of thousands of pounds when a tour operator fails, on margins of less than 1%, does not help the bottom line. The issuing bank does not take the hit.
When you meet a merchant acquirer, you will be told they are not in the risk business and are there to facilitate payments from purchaser to seller. When an operator fails, any claims paid by credit card direct to the principal are referred by the CAA to the credit card company.
The CAA is responsible for the cost of repatriations and any money left in the failed operator’s primary bond, after cash and cheque refunds, is distributed to the merchant acquirers.
Now, most operators do not have a primary bond, the CAA calculates a ‘notional’ bond from which any money left is refunded to the card companies after consumer claims have been met. The CAA returns the unused portion if the issuing bank has signed the charter.
The merchant acquirers are not happy with the system. They feel they should not be at risk. As long as they are, they request bonds, hold cash or delay payments from credit card transactions.
This is not satisfactory for operators, who not only have to bond their turnover with the CAA, Abta or Aito Trust, but also have to bond the portion taken on credit cards.
Many operators are double bonded. Yet no matter how they complain, they are bound by the Package Travel Regulations to bond all licensable and non-licensable turnover.
What’s the solution?
It would help if the merchant acquirers said how much they lose each year through operator failures. However, the banks never reveal the figure. The credit card companies won’t reveal the basis on which they assess operator risk either.
The solution would be for the Air Travel Trust Fund (ATTF) to refund credit cards once it has a healthy amount of credit. This would work wonders for the CAA’s reputation as the overarching financial protection scheme for travellers. It is why we need as many organisations paying into the ATTF as possible, and why the airlines should be brought in too.
Once we have a huge fund, the credit card problem would disappear.