Q: Our agency is getting into the high-end tour business. We act as the credit card merchant for the program. Retail advisors book our tours by calling in their clients' credit card numbers. I am wondering about how we can protect ourselves from chargebacks by dissatisfied clients. Specifically, is it common or fair for a tour operator to require the advisor to reimburse the operator for a chargeback in case the client successfully disputes the charge?
A: Very few tour operators, resorts or wholesalers require retailers to be liable for chargebacks. However, adding such a requirement to your agreement with each agency may be fair under limited circumstances.
I recommend that you add five required steps to your agency agreements to protect or defend against chargebacks. Only if the agency fails to take them should the agency be liable for the chargeback, and only as a last resort.
First, require the advisor to obtain the client's written authorization for the exact amount of the charge. An email exchange will suffice, but a signed reservation form would be better.
Second, require the advisor to disclose your company's identity so that the cardholder recognizes your name on their credit card statement and doesn't immediately initiate a chargeback request.
Third, require the advisor to get the client's consent to your tour participant agreement, which should contain appropriate disclaimers of liability, refund rules and cancellation penalties. The credit card company will definitely require evidence of this agreement if you are going to try combating any chargeback.
Fourth, require the advisor to cooperate with you once there is a chargeback request so that you can supply appropriate documentation to the credit card company.
Fifth, require the advisor to consent to your contacting the client directly so you can try to settle the matter with the clients if possible. In many cases, you may be better off settling for a lesser amount that the client will agree to pay.
You can detail these steps in your agreement with the retailer, stating at the end that the retailer will be liable only if it fails to take these steps and if you were not successful in trying to recharge the client's card.
I realize that, as a practical matter, it may be difficult or impossible to collect the amount of the chargeback from the agency. You could require the retailer to keep its own credit card on file as a backup, or you could try to deduct the amount of the chargeback from any future commission payments that the retailer would otherwise earn.
Adding such clauses to your contract could deter some sales, but you may be better off losing an occasional sale rather than risking a chargeback of an expensive tour price.
As an attorney who primarily represents retail advisors, I believe that such an agreement would be reasonable, but I welcome any rebuttal via email or comments left at the bottom of the online version of this column.