WASHINGTON -- For the first time, travel agent arbiter William
McGee ordered ARC to pay damages to a travel agency, ruling that it
breached the standard ARC-agency contract by withholding $25,000
that it owed to Worldwide Travel Services of New York.
McGee ordered ARC to pay the $25,000 to Worldwide Travel within
72 hours, plus interest at the small business prime rate of lending
in the New York area.
The $25,000 represents overages that ARC was supposed to pay
Worldwide Travel since July 26 for various sales weeks when the
agency's credit card and cash commissions exceeded net cash sales
due ARC.
Worldwide Travel, a seven-employee agency that deals almost
exclusively with the Bangladeshi community, said it had to borrow
money to make up for a cash shortfall suffered without its
overages. McGee said the agency could file a claim with his office
for any actual damages.
ARC had told McGee that as a "policy" matter, it holds back
funds due agencies that are in default and might cause losses to
the airlines. (As it turned out, this description did not apply to
Worldwide Travel.) McGee severely chastised ARC for its practice
and aimed to put an end to it.
He said ARC has no right in the contract to withhold agency
funds, just as an agency has no contractual right to withhold money
due ARC because it is waiting for override payments from an
airline.
Brian Hundertmark of Roberts & Hundertmark in Chevy Chase,
Md., the firm that represented Worldwide Travel, said, "The
decision shows that ARC cannot do whatever it wants to agents
regardless of the contract and if it does, the arbiter is willing
to assess damages against it."
ARC moved against Worldwide Travel because a sudden spike in
credit card sales, coupled with a suspicious use of third-party
credit cards and a lack of approval codes, led investigators to
suspect a bustout operation was in the works.
Although some of the firm's selling and ticketing practices did
have the earmarks of a potential bustout, Worldwide Travel was
never declared in default. Yet Worldwide Travel did not walk away
from the case unblemished.
To help the firm become familiar with its ARC obligations, McGee
ordered the owner to take a training course on the Certified ARC
Specialist test and to submit for ARC review a written plan to get
credit card approval codes as tickets are issued.
In a twist, McGee ordered the agency to sign up for electronic
sales reporting for one year -- the first time the arbiter has
imposed this condition.
ARC's investigation of Worldwide Travel was instigated by a call
from American Express, which said it could not locate holders of
various American Express cards on which at least $90,000 in airline
tickets sold by the agency were charged. The total of such charges
later turned out to be $340,320.
ARC audited the agency in July, suspected fraud and unilaterally
pulled its ticket stock and plates under Section XV of the
contract. Worldwide Travel filed an appeal with the arbiter.
As the case unfolded, it became known that the numerous tickets
were purchased by one of the agency's clients, Navana Catering, on
several valid American Express cards, usually for flights to
Bangladesh.
The airlines got their money, no chargebacks occurred and Navana
Catering was paying off the credit card balances.
Navana Catering bought the tickets for its employees and their
family and friends, who made various arrangements to pay Navana
Catering for the tickets such as payroll deductions.
McGee said Navana Catering was not "consciously operating an
unaccredited travel agency" but rather was "extending its credit
hand to newly arrived Bangladeshis" who could not immediately pay
for flights back home.
He saw no "grand conspiracy to circumvent ARC's accreditation
standards, but the sheer magnitude of the sales involved was enough
to give pause."
He ruled that ARC was correct to demand the agency's stock and
plates at the time of the audit, but wrong to withhold overages. He
dismissed the agency's appeal, granted its request for damages and
ordered ARC to return the stock and plates. The audit uncovered
several isolated contractual violations by Worldwide Travel, the
most serious being the use of a third-party credit card, combined
with the conversion of cash sales to credit card transactions.
Worldwide Travel used one of Navana Catering's credit cards,
with Navana's permission, to charge $5,100 in tickets purchased
with cash by agency clients. Navana Catering owed $5,100 to the
agency and invented the deal as its way of paying off the debt.
Worldwide Travel's owner said he did not think the arrangement
violated the ARC contract -- a statement that appeared to bother
McGee.