The Future of Financial Protection In the UK & EU


Here, in an article first published in ABTA’s Travel Law Today, Travlaw’s Stephen Mason continues Travlaw’s lead on thought leadership discussions on the impact of the imminent Package Travel Directive…

One of the most radical changes in the new Package Travel law, in force from 1st July 2018, concerns the regulatory system for financial protection of prepayments made by consumers (and repatriation for those stranded abroad when insolvency strikes).

The current law provides for organisers of packages to be regulated in each country where they sell or market to consumers. The downside of that is that companies wanting to expand to sell in other European countries need to jump through all the hurdles required by the regulator in each country. The upside should be that UK consumers are confident that holidays they buy are protected by the gold standard of ATOL, or by bonding through ABTA, etc. (But LowCost Holidays was a warning that consumers aren’t always as alert to what they are buying as they should be).

From 1st July 2018, all this changes. Regulation will now be in the country of establishment of the holiday organiser. So an ATOL, for example, will allow a British company to sell packages to consumers throughout the EU. This presents a real opportunity to companies for expansion. The CAA is gearing up for that change. Non-flight packages will continue to be protected by bonds, insurance or trust accounts (we await details), but the same applies there too – the protection enables trans-EU sales.

Naturally, the same law therefore enables German etc companies to sell to Brits on the reciprocal basis. It theoretically also means that consumer protection might be weakened if companies forum shop to find the cheapest place to be regulated. But:-

  1. Do companies actually want to move their head office to some distant EU Member State?
  2. The ECJ case of Rechberger v Austria in 1999 (Case C-140/97) shows that if a Member State permits inadequate financial protection, the State is itself liable to consumers for any shortfall.
  3. It remains to be seen how consumers needing repatriation fare in dealing with a foreign regulator.
  4. Companies based outside the EU do not get the benefit of these new rules, but must seek regulation in each State they sell in, as per the existing law. Agents who sell their products risk making themselves liable.

Following the issue of Consultations from the DoT and the CAA in February 2018, we now know rather more about how Financial Protection will work. Points:-

  • We have known that business travel will be taken out of regulation, but the requirement for such travel to be pursuant to a ‘general agreement’ has been a puzzle – what’s one of those exactly? But now we know that the CAA propose to issue a list of terms which must appear in such an Agreement for it to qualify for exemption. This concept is reminiscent of the compulsory terms in ATOL Agency Agreements, though the detail will differ. We await details.
  • ATOL will now be required even if a flight, which is part of a package, is sold as ‘agent for the consumer’
  • Flight-Plus is being abolished. Most Flight-Plus arrangements will be packages under the new law; a few may be Linked Travel Arrangements (“LTA’s”) , see below.
  • It will be made clear that ‘Agents for ATOL holders’ who are selling packages under the new law, require their own ATOL.
  • The powers of the CAA to enforce the law are currently either a criminal prosecution or revoking/suspending/amending the ATOL. To add flexibility, the CAA will also be given powers to take civil action, eg for an Enforcement Order (a type of Injunction, in effect) under the Enterprise Act 2002.
  • LTA’s are to be taken out of the ATOL scheme, to avoid consumers being misled into thinking they are getting full ATOL protection, whereas in truth the financial protection of an LTA is weak, limited to the money given to the first trader, to guard against his/her own insolvency only (not suppliers’ insolvency), and only for the time which that trader actually holds the money, which could be seconds only. So traders need to protect LTA’s via bonds/insurance/trusts, or (for the flight element) selling an ATOL protected flight.
  • There are numerous proposed fairly minor changes to ATOL Standard Terms, but most significantly, websites will have to give much more information about identified flights eg is flight direct or indirect, name of the airline, details of times and any connections . Some of these are controversial; many travel companies believe that naming the airline will send consumers rushing to the airline’s own site to compare prices, for example.
  • Finally, after all this has bedded in from 1st July, it is proposed that at a later date the issue of ATOL Certificates will be taken out of the hands of travel companies, and the CAA will issue these themselves. This would give consumers confidence that the ATOL protection is genuine, and provide the CAA with much better information immediately to hand to carry out repatriations in the event of insolvency of the ATOL holder.

So a massive change is upon us, starting from 1st July. Complaints that this is far too short notice for the industry to achieve full compliance in time have been met by the CAA saying they will be “understanding” in the early days after 1st July, as long as they can see that companies are genuinely moving towards compliance. What sort of law is that?

I have also ignored the impact of Brexit on all the above, as no one knows precisely what will happen. Clearly, all the above law is coming into force in the UK on 1st July, but let’s hope the ability to sell cross-border will be maintained after Brexit.

This article was originally published on: 8 March 2018

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