Travel companies face the prospect of being forced to abandon strict rules surrounding non-refundable deposits following intervention by the UK competitions regulator into a case involving Regent Seven Seas Cruises.
Firms that refuse to refund payments for cruises and other travel arrangements which have to be cancelled could be breaking the law, the Competition and Markets Authority warned.
Even airlines could be acting illegally when they sell “non-refundable” tickets.
The CMA reported last week that more than half of businesses overall appeared not to understand the Consumer Rights Act, introduced last year.
It says the Act requires firms to limit their losses in these circumstances, for instance by reselling tickets, and that where losses were recouped firms had “no entitlement” to the original customers’ money.
The CMA later confirmed to the Daily Telegraph that the scope of the legislation could be extremely wide, going beyond travel to encompass accommodation, events packages and more.
A spokesman explained that its guidance applies to all businesses “which rely on terms and conditions when dealing with consumers”.
It said that where firms’ Ts&Cs ruled out any possibility of refunds, they were likely to be in breach of the Consumer Rights Act.
A spokesman said: “Because traders have a responsibility to take reasonable steps to offset their losses, for example by re-selling, terms that mean there is no possibility of such mitigation are likely to be unfair.”
Lawyers said it was unusual for the CMA to assert such a clear interpretation of the law, much of which is as yet untested in the courts. But they said it sent a signal as to the likely line the watchdog would take.
The Daily Telegraph previously reported that a number of holiday firms including Thomson Holidays, Viking Cruises and Imagine Cruises were charging customers large deposits when booking a holiday, but refusing refunds when they find they are unable to travel through no fault of their own.
Andrew Leakey, head of dispute resolution at law firm Stephensons, said: “Usually CMA issues guides such as this expecting companies to comply with them. It is about influencing behaviour.”
He said the legislation and the CMA’s guidance “tilted the balance further towards consumers”.
Whether or not courts would take a similar view is unclear, but the CMA’s stance will help consumers mounting a complaint.
John Collinson, 70 , booked a holiday in January with Regent Seven Seas, through travel agent Six Star Cruises. It was set to depart in late September, and he paid a £1,080 deposit.
In February, during a trip with his wife Ann to Australia, the couple discovered that Mrs Collinson had bone cancer.
Returning home, Mr Collinson rang the travel agent on March 3. He was told he didn’t have to decide until the “final balance due” date in May, but that cancellation would mean losing the full deposit.
When he later cancelled, around five months before the cruise sailing date, he asked Regent Seven Seas for a refund of his deposit less any “reasonable charges”.
But the company offered him only a credit for half his deposit amount, to be used within the next two years. This was eventually increased to £600.
Mrs Collinson died in early July but Regent refused to pay the money back in cash.
The cheapest Regent cruise available starts from £4,811 if Mr Collinson were to sail alone, as the firm’s fleet has no single cabins.
The newspaper asked Regent why customers were told their deposits were non-refundable even where cancellations were very early.
A spokesman said that, as with other cruise lines and travel companies, “we have a scale of charges which are highlighted to our guests at the time of booking”.
However, the firm admitted: “Guests are not contacted or offered reimbursement if their suite is resold.”
The line said it would “welcome any guidance the CMA may offer”.
The cruise on which the couple had hoped to sail did depart with some empty suites, but none of the grade Mr Collinson had booked.
His booking was for an “F grade suite guarantee”, meaning he was guaranteed a cabin of at least that grade.
The ship sailed with no empty F grade suites, or suites in the grade above.
The spokesman said: “While we sympathise with Mr Collinson, we feel that our offer is generous.”
In another case examined by Telegraph Money, Hurtigruten reportedly kept £4,000 of a customer’s money even when the ship failed to sail in February due to technical reasons
Retired barrister John Cartwright mounted a successful legal challenge against Hayes and Jarvis for a booking made via Thomas Cook when he was forced to cancel a holiday and the operator attempted to keep his deposit while re-selling his tickets.
He said travel firms had a long history of harsh Ts&Cs relating to refunds.
“The previous watchdog was largely ignored. Now, in 2016, the CMA is in effect telling the travel industry to change its contracts and observe the Act,” he added.