Buyer, Beware: Bankruptcy Can Cancel Your Tour -- Travel Industry Moves Toward Policing Itself

Let's assume that your friendly local savings and loan goes under - not beyond the realm of possibility, you'll admit - and you have a $1,000 certificate of deposit there that has grown to $1,400.

Do you lose your money? Of course not. Federal laws protect it.

Let's assume you held $10 tickets to a baseball game that got rained out. Do you lose the money? Of course not. You get to see another game, another time.

Let's assume your travel agent sells you a week's trip to the Bahamas for $759, put together by a wholesale tour operator, but that operator goes bankrupt the day before you're scheduled to leave. Do you lose your money? You bet you do.

That's an overstatement, of course. It's actually possible, in certain instances, to get some of your money back if a tour operator or airline goes bankrupt, but it's not ``too'' likely. It's ``caveat emptor'' out there, folks: Buyer beware.

When Eastern Airlines went bankrupt a little over a year ago, consumers were left holding the bag for an estimated $200 million. Last year, Lindblad Travel, one of the most reputable tour companies in the business, closed abruptly - stranding some of its clients abroad - and filed for bankruptcy. In the last decade, dozens of airlines and tour companies have gone into bankruptcy, and rarely have individual consumers recovered any of their losses.

It's a different story in Ontario, however, and in several other Canadian provinces with similar consumer-protection programs for travelers. In Ontario, for example, thousands of consumers who were caught last month in the bankruptcy of Thompson Vacations, a major wholesaler, are now in the process of getting their money back.

And when that's done, the Ontario Travel Industry Compensation Fund will rebuild to $7 million on licensing fees and special assessments paid into it by retail travel agents and wholesale tour companies. It's enough money to protect individual travelers, even in the event of a major bankruptcy like that of Thompson, which stranded about 5,000 travelers abroad and left at least another 5,000 with some degree of loss.

Is there anything like the Ontario fund in the United States? The closest program is Hawaii's Travel Agency Recovery Fund, which currently contains a grand total of $65,000, according to June Kamioka, the fund's executive secretary. That's hardly enough to compensate thousands of victims of a major tour-company bankruptcy, especially since it's limited to total claims of $8,000 against any one company.

For the most part, the rest of the states have steered clear of consumer-protection laws for travelers. And federal agencies that are supposed to look after the rights of travelers - the Department of Transportation is a good example - have demonstrated little inclination in that direction in the last decade.

In the absence of any substantive protection, a very strange thing is occurring: The travel industry is moving increasingly in the direction of policing itself.

Perhaps the most promising sign is a $5 million bonding program just begun by the United States Tour Operators Association (USTOA) for its members, who are some of the biggest tour companies in the business - Abercrombie & Kent, American Express Vacations, Maupintour, Olson-Travelworld and Tauck Tours, to name a few. Essentially, what this plan means is that if your travel agent sells you a trip with one of these firms, and that company goes bankrupt before you get what you paid for, you're most likely going to get your money back.

Another good sign is that both major national travel-agent organizations - the American Society of Travel Agents (ASTA) and the Association of Retail Travel Agents (ARTA) - are lobbying Congress for some sort of fund to protect consumers caught in an airline bankruptcy. (ASTA is made up of travel agents and others in the travel industry; ARTA, which is smaller, is made up exclusively of travel agents.)

ARTA, in addition, clearly favors broader protection. ``USTOA has established a very, very good program,'' said Paul Bessel, a lawyer and president of ARTA. ``But unfortunately, only about 40 tour operators belong to it, and there are several hundred nationwide. And any time a customer buys a tour from somebody other than a USTOA member, they're taking a risk. There is no question that the only really effective method would be an industrywide bonding program.''

Bonding programs like USTOA's are nothing new. Tour and travel-agent associations have long had them, but generally for $100,000 or $150,000 per member company - a drop in the bucket when it comes to covering consumer losses.

Right now, the USTOA program is the only one of its kind in the United States. It provides up to $5 million a year to reimburse consumers for any losses of deposits or tour payments that result from a member bankruptcy, or from simple failures of a member to refund payments or deposits after a tour is canceled. If you're buying a tour, it's worth asking your travel agent if the wholesaler is a USTOA member.

The Lindblad bankruptcy is the subject of a class-action suit filed in a federal court in New York two months ago, charging that the company ``knew or should have known that they would be unable or unwilling to deliver travel services'' to at least 300 people caught in the bankruptcy action. Not only that, the suit also charges that a few weeks beforehand, Lindblad went to USTOA, canceled its membership and ``took back the $100,000 surety bond or other financial instrument and converted these monies to their own use.'' Lindblad has denied any wrongdoing.

The people who sell tour packages to you and me - retail travel agents - are also worried because now they are being sued for damages when a wholesale tour operator such as Lindblad defaults.

Thomas A. Dickerson, a Manhattan lawyer who filed the Lindblad suit, filed a similar class-action suit against Hemphill Harris Travel Corp., a California travel wholesaler that ran into cash-flow problems last fall and stranded some of its clients abroad, and against a retail agent who sold a Hemphill Harris package.

``If the travel agent had done a better job of investigating the condition of Hemphill Harris - all they had to do was make one phone call - at the very least my clients would have avoided spending $6,400 for nothing,'' said Dickerson.

Increasingly, travel agents are warning customers about the possibility of an airline or tour-company failure, and suggesting the purchase of insurance. Travelers must measure the risk. If it's an expensive trip or a once-in-a-lifetime voyage, insurance is probably advisable, despite the cost. And it is expensive; to insure against cancellation of a $3,000 trip requires an additional expenditure of $165.