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Tour Operator Failure: An Old Problem Resurfaces

Last week, Club ABC Tours of Bloomfield, NJ, apparently folded, leaving customers and suppliers with little recourse. I say “apparently,” because the company made no formal announcement: Instead, it just quietly disappeared; its website is no longer responding, and press reports indicate it isn’t responding to any inquiries. I think you can assume it’s gone. And that means current customers’ prepayments and deposits are probably lost, and some suppliers are likely left with unpaid bills. Because I can’t access the website, I can’t tell if any travelers who already started their tours are “stranded” somewhere: It could happen, I just haven’t seen any reports.

I say this is an “old” problem because tour operator failures were fairly common in the 1960s and 1970s. Not only did lots of travelers and suppliers lose all their prepayments, but also some well-publicized groups on European tours became stranded when the operator couldn’t pay their return airfare. And many were forced to pay hotels a second time when the operator couldn’t pay their bills. Tour operator failure became such a big deal that the government and several states enacted various consumer protections, including placing prepayments in escrow accounts, operator bonding, and victim funds. Also, the United States Tour Operators Association (USTOA), the trade association that includes most big tour operators, developed a funding or bonding system to provide recourse for consumers if any of its members failed. As a result, operator failures ceased to be a big problem. A few cases subsequently slipped through the cracks, but the several “safety nets” generally worked. But not always—we’ve still seen a trickle of operator failures, including, apparently, this one. This failure raises two questions: What recourse do travelers have? And how can you avoid getting caught in a similar situation?

After-the-fact recourse in a case of failure is often problematic. Almost by definition, the defunct company can’t provide refunds. Travelers’ best option is to request a chargeback on their credit cards—if they bought by credit card. And travelers who bought their own third-party cancellation insurance can collect—provided the policy covers operator default. But travelers who paid by cash, check, or debit card or relied on the operator’s insurance policy will get nothing.

Prevention is clearly the only sensible option. And, with a tour operator, it’s easy to minimize the risks of failure:

  • Never assume that any operator is “reliable,” regardless of how big or well known. Many of the worst failures in previous decades were big companies that would have been regarded as “reliable” right up to the day they folded.
  • Buy cancellation insurance (TCI) whenever you have enough money up front (in deposits or prepayments) that you can’t afford to walk away in the event of a problem—either your problem or the operator’s.
  • Buy third-party TCI yourself, through such agencies as QuoteWright, not from the tour operator. Almost all TCI policies exclude payments if the agent that sells the policies fails. So if you buy from the operator, the policy doesn’t cover failure of that operator. Even “cancel for any reason” policies won’t help.
  • Make sure any TCI policy you buy covers operator “default,” not just “bankruptcy.” In the majority of earlier cases, when operators failed, they just shut up their offices, took whatever assets were still left, and disappeared: They never actually filed for bankruptcy.
  • If possible, buy from an operator that belongs to the USTOA. ABC didn’t.
  • Always use a credit card, not cash or a debit card. Only credit cards offer legally required chargebacks in the event you don’t receive a product or service for which you’ve paid. This feature isn’t foolproof, but it works in many cases.

Operator failure is a risk nobody really has to run. The preventions are easily available and at reasonable cost. And as with many previous reports, my thanks to QuoteWright’s John Cook for insights into the insurance aspects of the problem.

Ed Perkins on Travel is copyright (c) 2012 Tribune Media Services, Inc.

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