The following article was written by Stephen Mason, Senior Partner, Travlaw LLP or Travel Law Today, 5th Edition which can be read here.

One of the most radical changes in the new Package Travel and Linked Travel Arrangements Regulations 2018 (PTR), in force from 1 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 requires package organisers to be regulated in each country where they sell or market to consumers. The downside to this is that companies wanting to expand and sell in other European countries need to jump through all the regulatory hoops in each country. The upside should be that UK consumers are confident that the holidays they buy are protected by ATOL, or by bonding through ABTA, etc. although LowCostHolidays was a warning that consumers are not always as alert to what they are buying, as they should be.

From 1 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 (see new Reg 9C being inserted into the 2012 ATOL Regulations). 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, but the same applies there too – the protection enables trans-EU sales.

Note that there are new requirements for Trust Accounts, however. First, there is a new rule that the Trustee must be independent (Reg 23(3)); about time too! Secondly, Reg 24 requires that any package holiday protected by a Trust Account, and involving carriage of passengers, must also be backed up by insurance which covers the cost of repatriation, and, if necessary, accommodation pending the repatriation. We hope there is not the following problem: one reason why Trust Accounts have been popular is because of the difficulty of finding insurance products on the market which provide financial protection. Assuming such products have now become available, why not just have insurance, instead of the having the hassle of both insurance and Trust Account? In addition, if such policies are not available, how will Trust Accounts survive? Hopefully, the market will provide solutions.

Naturally, the same Package Travel Directive enables German (for example) companies to sell to Brits on the reciprocal basis. It theoretically also means that consumer protection might be weakened if companies forum shop around to find the cheapest place to be regulated.

Consider:

1. Do companies actually want to move their head office to some distant EU Member State
2. The European Court of Justice 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 DfT and the CAA in February 2018, we now know rather more about how financial protection will work. Consider these points:

• We have known that business travel will be taken out of regulation, but the requirement for such travel to be pur suant to a “general agreement” has been a puzzle – what is one of those exactly? We know that it must cover more than a one-off travel sale. Now we know that the CAA proposes 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.
• An 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 (LTAs), see below. • It will be made clear that ‘Agents for ATOL holders’ selling packages that they organise themselves 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, e.g. for an Enforcement Order (a type of injunction, in effect) under the Enterprise Act 2002.
• LTAs will, generally be taken out of the ATOL scheme. This is to avoid consumers being misled into thinking they are getting full ATOL protection. Therefore, traders need to protect LTA’s via bonds/insurance/trusts. However, the flight element will still be required to be protected under the ATOL Regulations as a seat-only sale unless the flight provider is an airline or the sale is exempt from the ATOL regulations, for example as an airline ticket agent sale. In truth, the financial protection of an LTA is weak, limited to the money paid to the company facilitating the sale of the various services, to guard against his/her own insolvency only (not suppliers’ insolvency), and only for the time that the company actually holds the money, which could be seconds only.
• There are numerous, fairly minor, changes proposed to ATOL Standard Terms, but most significantly, websites will have to give much more information about identified flights e.g. whether the flight is direct or indirect, the 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 1 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 (allegedly) give consumers confidence that the ATOL protection is genuine, and provide the CAA with much better information to carry out repatriations in the event of insolvency of the ATOL holder.

Therefore, a massive change is upon us, starting from 1 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 1 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 1 July, but let us hope the ability to sell cross-border will be maintained after Brexit.

Find ABTA's Q&A for consumers on the Package Travel Regulations here.