Flight Risk: pressure to bring back travel agent trust accounts, save travellers from insolvency

by | Jun 21, 2021 | Business

In 2014 intensive lobbying by travel agents got rid of protections for the travelling public when companies went bust. When Covid hit, many thousands of people lost huge amounts of money. Pressure is now growing for travel agents to set up mandatory trust accounts. Tasha May reports.

For years Joyce Sherman saved the carer’s payments she receives for her son Kenny, who has an intellectual disability, to take him to Disneyland, Universal Studios and Las Vegas for his 25th birthday.

Joyce cares for Kenny almost around the clock, except for when he goes to a day program for a few hours from Monday to Thursday. She said the holiday would have offered them “a relief from the daily grind and a bit of fun”.

Kenny was looking forward to the new Star Wars area of Disneyland, while Joyce wanted Kenny to have some memories of travelling.

“I’m not getting any younger. When I’m gone, I don’t know if anyone will take him travelling.”

Joyce transferred more than $8400 to STA Travel in 2019. When Covid-19 hit in March 2020, not only were Joyce and Kenny not able to share this special birthday trip, but she lost all her money when STA filed for insolvency in August.

Mandatory trust accounts

“This could all have been avoided if trust accounts for travel agents were mandatory,” says consumer advocate Adam Glezer.

Glezer runs several Facebook groups, including Travel Industry Issues: The Need for Change for Australians. The groups, with more than 17,000 members in total, act as forums for people to share their experiences.

Following extensive media coverage of the huge amounts of money that people have lost as a result of holidays being cancelled due to Covid, momentum has been building for more consumer protection.

Earlier this month, Liberal MP Kevin Andrews put forward a motion in parliament arguing for stronger consumer protections when it comes to travel in Australia. These include establishing “mandatory trust accounts for all travel agents”.

History repeats

While the pandemic has exacerbated the lack of financial protection, Covid isn’t the first time consumers have been hit hard due to travel companies folding. When Bestjet collapsed in 2018 hundreds of customers lost many thousands of dollars each after paying for holidays that never eventuated.

Up until 2014, Australian travellers were protected in such circumstances. If a travel provider became insolvent, they would be reimbursed through the Travel Compensation Fund (TCF).

Travel agents paid about $15,000 to become members of the TCF, but paid less if they had a trust account, says travel lawyer Tony Cordato.

However, after extensive lobbying by the travel industry, the TCF as well as state-based consumer protections were scrapped in 2014.

Cordato said that when the fund was cut in 2014, it should have been replaced by a requirement that travel agents and tour operators have trust accounts.

Instead consumers have since been left without any protection as no travel insurance policy covers a travel agency’s insolvency in Australia.

Customers who paid with a credit card can go through the lengthy process of claiming a chargeback, but those who didn’t use a a credit card – like Joyce – are left with no protections.

Glezer says trust accounts are important because they ensure the customer’s money is only used for its intended purpose.

He highlights that lawyers and real estate agents are required to use trust accounts.

“The common denominator there is that they all deal with large sums of money intended for a third party.”

Gerard Brody, the chief executive of the Consumer Action Law Centre, believes trust accounts are beneficial to businesses generally as they mitigate the risk of insolvency.

However, the Australian Federation of Travel Agents (AFTA) does not believe the industry needs mandatory trust accounts.

As AFTA notes on its website:

“Calls for Travel Agents to have mandatory trust funds are misguided… because travel agents only hold consumer funds for a very short period of time before it is passed on to the end supplier (airlines, hotels, cruise lines, tour operators etc).”

AFTA told Michael West Media that the statement “still stands and is accurate”.

However, it is simply not the case that “travel agents only hold consumer funds for a very short period of time”.

In Joyce’s case, and that of other customers of STA, it appears STA held on to the money because the end suppliers never received the money.

Joyce said she rang Air New Zealand, which confirmed it never received her money.

Natalie Hahn is out of pocket more than $16,000. Also through STA, Hahn had booked with Italian tour company G-Adventure Tours. She contacted G-Adventure Tours, which confirmed in a letter that it hadn’t received the money she had deposited with STA.

While Hahn is trying to remain positive and is saving hard for another holiday eventually, she says: “I want to make sure that the money I pay to a travel agent is put in trust.”

Travellers last in line to be refunded

When a company goes under, secured creditors like banks are first in line. Customers are considered unsecured creditors so are last in line if the money hasn’t been paid into a trust account.

Deloitte has been appointed administrators and liquidators of what’s left of STA’s defunct business.

According to Deloitte’s ‘Report to creditors: STA Travel Pty Limited (In Liquidation)’ released 29 December 2020, more than 37,000 customers are owed an estimated $48 million.

As at 30 November 2020, Deloitte had recovered more than $1.2 million of customers’ money. However, the total cost of external administration (ie. the fees paid to Deloitte) was double the amount recovered – more than $2.4 million – meaning there would be nothing left for customers.

Cordato says that under the liquidation process, he liquidator (Deloitte), secured creditors such as banks and directors, staff and shareholders are all paid ahead of customers.

An earlier report to creditors released in September identified an account that was referred to as a ‘trust’ account, but in fact did not operate as a trust account should. Deloitte found “a co-mingling of operating cash flows and customer monies”.

Flight Centre similarly does not hold customers’ money in trust.

On its website, the terms and conditions state:

“Monies paid by you to us will not be held by us on trust for and on behalf of you and we may hold such monies in any account as we see fit.”

Consumer advocate Adam Glezer says: “Covid has exposed a number of cracks in consumer protection, specific to the travel industry.”

And if nothing changes, people will continue to lose their hard-earned money.

Travel insurance: beware bogus clauses which deny your claim

ABOUT THE AUTHOR

Tasha May

Tasha May

Natasha graduated with an undergraduate degree in English literature from the University of Cambridge in June 2019 and is currently studying a Master of Journalism at the University of Technology Sydney. Natasha’s Twitter handle is @tasha_tilly

Please join the discussion on your preferred social media - you find us on Twitter, Facebook or LinkedIn.

Secret Rich List

Secret Rich List banner

Tax Dodgers

Rortswear by Slush

QED

Case for Federal ICAC

Quad Erat Demonstrandum

Revolving Doors

Revolving Doors

Video Channel

The West Report

Support Us

subscribe to michael west media
Rortswear and ClimateCards
The West Report Banner
Michael West Email

Get Our Weekly Newsletter

Unsubscribe anytime.

Thank you! We'll also confirm via email.

Pin It on Pinterest

Share This