The Law of the Tour Sale
By Jeff Miller
October 16, 2012 11:45 PM
In my experience, most agents working at home are very knowledgeable about selling tours and packages and are aware that these sales can create an excellent revenue stream. But there are certain issues that you should be familiar with when selling tours and packages in order to protect yourself, your host agency and your customer.
As an initial matter, you need to be familiar with the terms and conditions of the tour or package so that the correct information can be provided to your clients during the sale process. For example, if the cancellation penalties apply within 60 days of travel, you need to make certain that any consumer disclosure notice issues from you or your host agency follow the same time frame.
It’s also essential that your consumer disclosure notice set forth the principal-agency relationship between you as the travel agent and the supplier in order to minimize potential liability if there is a problem with the travel arrangements. Included in the consumer disclosure notice should be a statement indicating that your client was offered travel insurance and that you recommended the use of a credit card. You also need to put in language reconfirming that you and your host agency are merely agents of the supplier and not a principal.
Generally, under federal law if a credit card is used to pay for goods and services not delivered, the cardholder has certain rights to obtain a credit if payment has been made or alternatively he or she can have the charge removed from the credit card if payment has not been made. Please keep in mind that these protections under federal law do not apply to the use of debit cards for which there is no protection under federal statutes.
It also is important to keep in mind in selling tours and packages to make certain that the issue of supplier default has been addressed by a consumer disclosure notice and by the offer of travel insurance. The number of these defaults has continued to decline over the past several years, but as the industry is well aware, many well-known, long-established suppliers are no longer in business.
The best protection against supplier default is for you, your host agency and your client is to use common sense in maintaining awareness of industry developments that may impact suppliers. You need to speak with other agents, particularly those in different geographic regions of the country, to keep abreast of changes in a supplier’s operations. These can include consistent complaints from consumers about being “walked” to another less desirable property, changes in acceptance or overall refusal to accept credit cards, and feedback from other agents and their clients that specific items described as part of a package were not provided or that there was significant substitutions.
In my experience representing travel agents for more than three decades, the biggest warning sign of financial default is the supplier’s refusal to accept credit cards or if that supplier runs a significant, deeply discounted sale for which credit cards are not accepted. Historically, this has demonstrated that the supplier is on shaky financial ground and will ultimately go out of business.
There are some travel insurance policies available to consumers that cover supplier default, but there are generally restrictions to such policies and to some suppliers who are specifically not covered by them. Furthermore, it is unlikely that your errors and omissions or general liability insurance policies will cover a claim by a client as a result of a supplier default and thus you could be a defendant in a lawsuit with no insurance coverage.
It is extremely important that you and your host agency book preferred suppliers on the assumption that your consortium or franchise has negotiated a preferred supplier agreement that includes updates on a supplier’s financial information. While this does not provide a 100 percent safety net or guarantee of performance, it certainly is better than booking suppliers with which you have no preferred relationships.
If the supplier belongs to the U.S. Tour Operators Association (USTOA) there is a program in place to protect consumers booking with one of their members. However, such protection will likely not cover a 100 percent refund to each customer if the supplier goes out of business because there is a cap on the total coverage.
Unfortunately, over the years some of my clients have been involved in disputes with consumers as a result of supplier default. But many have avoided problems because they were able to detect warning signs of a supplier’s potential financial difficulties before that company defaulted. While there is no guarantee that you can protect yourself and your clients from supplier default, putting in place sound business practices can minimize the risk you and your clients face.
Jeff Miller is a Columbia, Md.-based attorney specializing in travel law. He is a regular columnist for Agent@Home magazine and this column is adapted from one appearing in the October 2012 issue. View his website at www.jmillerlaw.com or email him at firstname.lastname@example.org.