Comment: Travel agents should be careful what they wish for

Comment: Travel agents should be careful what they wish for
By admin

By now every travel agent will be aware that from July 1 most states repealed the Travel Agents Act and as a result agents no longer need to be licensed. The Travel Compensation Fund has also ceased operation.

These changes have been heavily promoted by the Australian Federation of Travel Agents (AFTA), ostensibly to reduce red tape and compliance costs. In its place is a new voluntary accreditation scheme supervised by AFTA known as ATAS.

However this free market reform carries with it real risks to the travel industry and its reputation  and importantly consumers.

Since the mid 1980s all states and territories have been part of a national licensing regime. The Travel Agents Act was introduced to provide consumer protection and had three objectives.

The first was to set licensing requirements for agents and tour operators and to set professional standards for the industry and for the protection of consumers. The second was to set financial requirements for travel agents in the conduct of their business. The third was to protect consumers’ money by establishing the TCF which would pay compensation where there had been a loss caused by a travel agent default.

From July 1, all that has gone. Regulation has been replaced by a voluntary accreditation scheme run by an industry body – membership of which is also voluntary.

The abolition of national licensing means that there are now no barriers to anyone entering the travel industry.

For many years travel agents called for higher entry barriers to establish the professionalism of the industry and to keep out the spivs and shonks. Those who can remember back to the bad days of the 1980s and earlier will know the travel industry, involving as it does large sums of money, acted as a magnet for some unsavoury people with questionable business practices.

The licensing requirements under the Travel Agents Act helped weed out many of these fly by nighters, gave consumers confidence that their money was safe and provided compensation when something did go wrong.

Under the Travel Agents Act you could only hold a travel agents licence if you were a fit and proper person and met professional standards for experience, qualifications and management.  The TCF also imposed a high degree of financial responsibility on agents which had the effect of lifting standards and their financial well being. Agents were accountable and consumers had redress in the event of failure.

The major criticism of licensing and the TCF was the cost of compliance including the need for  an adequate capital base.  Yes, there were some very annoying elements and failings in the national legislation. Companies operating in more than one state had to hold separate licences. The Travel Agents Act was enacted before the internet and email and was never updated to take into account the massive role technology now plays. Home-based agents were allowed in some states but not others. 

However should this have justified the total removal of licensing and a statutory consumer protection scheme?

AFTA and the ATAS promoters claim that the new scheme will ‘elevate’ standards and provide flexibility through its offer of a variety of insolvency insurance options. Consumers will have rights under the Australian Consumer Law.

AFTA’s reliance on the Australian Consumer Law is misplaced. Consumers already have those rights. ATAS accreditation affords absolutely no consumer protection. Post TCF consumers who  lose money because of a travel agent failure who did not hold insolvency insurance will be forced to bring legal proceedings if there is no other avenue of redress (for example, through their credit card provider).

As recently as the week before the repeal of the Travel Agents Act, an affiliate of a national chain collapsed owing in excess of $450,000.  If that had occurred after July 1, consumers would  have had no recourse to the TCF and might well have had no other recourse if the company went into  liquidation and did not hold insolvency insurance.

The TCF provided prudential oversight to the industry and with it an enhanced professionalism. The TCF has dealt with on average 20 to 30 agency failures each year. And that is with licensing. There is a strong likelihood that without statutory supervision the number of agency failures will increase.

ATAS accreditation is not compulsory and is being promoted as some form of seal of approval. AFTA will have no authority to enforce standards against any agent who is not ATAS accredited.

Accredited agents will have access to a range of insurance products to protect both their business and their customers against insolvency.  But it will not be compulsory to hold such insurance.

Only one company is offering ATAS insurance policies. These cover airline failure, end supplier failure or travel agent failure.  Already there is concern about the extraordinarily high premiums being quoted which well exceed the cost of licensing compliance and TCF membership. Not unsurprisingly, to date there has been little support for these products.

What then is the industry left with? The abolition of consumer protection, the removal of prudential oversight, a voluntary accreditation scheme and no compulsory insurance to protect consumer funds. 

It remains far from clear what consumers will see as the tangible benefits of ATAS accreditation in the absence of an industry wide and uniform consumer protection regime.

While the removal of business overheads may provide some short term joy, the dismantling of the barriers to entry opens the door to poor business practices and is an invitation to undesirables. There is a real risk to the industry’s integrity and hard won professional reputation. There is an even greater risk for consumers.

It will only take a few large collapses for consumers to demand their politicians legislate for adequate protection. Travel agents should be careful what they wish for.

Steven Lewis is a principal at ACA Lawyers and specialises in travel law. He recently successfully ran a class action against airlines for the recovery of commission on fuel surcharges.

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