Credit protection may be lost

Holidaymakers paying for travel with their credit cards could be left without a vital piece of consumer protection if upcoming EU legislation is successful in removing part of the Consumer Credit Act.

Section 75 of the act, which obliges credit-card companies to underwrite purchases of more than £100, was removed from the European Consumer Credit Directive draft to harmonise EU countries' legislation late last year, although the UK government is fighting to have the clause returned. A final decision is expected next year, said the Department of Trade and Industry.

Scrapping Section 75 would leave travellers 'without adequate protection in many cases', said the Association of British Travel Agents (Abta). Although travel companies are obliged to have adequate bonding or insurance for package travel to ensure that holidaymakers get their money back should the company go bust, there are several loopholes in protection.

While passengers on charter flights are covered against airline failure by Air Travel Organisers' Licensing (Atol), they are not covered on flight-only deals with scheduled carriers booked direct with the airline. Abta has for some time been advising travellers on scheduled airlines to take out extra insurance or pay by credit card to ensure they are covered financially.

Also, because only packages have to be covered by law, other elements of a holiday booked separately, such as hotel accommodation, might not be covered unless they are booked through an Abta member or similar group with comprehensive cover. Because of these loopholes, consumer groups see payment by credit card as the last line of financial protection for travellers.

Mike Naylor, senior researcher at Which? magazine, said: 'Losing the clause would definitely be a reduction in consumer protection. Foreign transactions are a grey area; now, many credit-card companies refuse to cover customers for them.'

However, the Association of Independent Tour Operators (Aito) said it welcomed the probable law change, which meant that holiday prices from fully bonded travel companies should come down. Aito deputy chairman Noel Josephides said consumers using credit cards to buy holidays with fully bonded travel companies were paying for two sets of protection.

He added that the Consumer Credit Act often gave holidaymakers a false sense of security when booking with tour operators who did not have comprehensive bonding.

'The consumer credit protection will go,' he predicted. 'However, if you are booking with an Atol member there is already ample protection, and the price of holidays will drop.'

He added that holidaymakers were often confused over the cover provided by their credit cards. 'For example, if one person pays for a group holiday with a credit card and the non-bonded travel company goes bust, it often happens that the payer's holiday alone is refunded - it's a minefield,' said Josephides.

A Barclaycard spokesman said: 'We don't want to lose Section 75, as it makes people feel considerably safer when making a purchase and we want to safeguard this feeling of security. If it goes it would shift all the onus on to the travel industry.'