Mark Pestronk
Mark Pestronk

Q: With all the refund claims hitting cruise lines, tour operators, consolidators, wholesalers and even retailers who operate their own tours and groups, the travel industry is low on cash. For the future, do you anticipate that there will be changes to those companies' standard terms and conditions in ways that limit refund rights? If so, what will the changes be? If the changes are viewed as anti-consumer, would you expect any federal or state government agency to step in and prohibit them?

A: Until the coronavirus crisis, the majority of travel companies probably had terms and conditions that stated that if the company canceled the trip, the company would provide full refunds. Most terms and conditions further stated that the refund would be the limit of liability, meaning that the company would not pay for the additional cost of an alternate, higher-priced trip operated by another company.

It has become clear that these industry-standard clauses need to be changed, but there is no consensus on what should replace them. I see three alternatives:

Option 1: If the operator cancels due to a reason beyond its control, there will be no refunds. I can see such a clause becoming prevalent where the operator is taking major inventory risks requiring advance payment to suppliers, who cannot be counted on to make refunds to the operator. Charters of small ships in less-developed countries, adventure tour operators or villa rental companies would be examples of companies that might adopt such a provision.

Option 2: If the operator cancels for reasons beyond its control, it will make refunds to the extent that it can get money back from its suppliers during a fixed number of months after the trip would have operated. Tour operators can count on refunds from some suppliers but not others. So the operator would make reasonable efforts to collect from the suppliers over, say, two months and then refund whatever it has collected.

Option 3: If the operator cancels for reasons beyond its control, it will offer a credit or voucher good for any trip organized by the operator in the next year or two. This is what the cruise lines have tried to do, so their policies will probably be incorporated into their standard passenger contracts in the near future. Alternatively, the operator may provide that it has discretion whether to offer a refund or a credit.

For airlines, the DOT has already mandated cash refunds for flights canceled by the carrier. I do not predict that the DOT or any state is going to require a similar result for other suppliers or operators, as such a rule would drive thousands of companies out of business.

Although state seller of travel laws currently require sellers to make refunds when they are unable to operate a trip, they are excused from having to do so if they can show that they have remitted the funds to their suppliers or if the seller's terms and conditions do not require refunds. 

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