Thomas Cook’s collapse and our rights as consumers

The eventual collapse of Thomas Cook into immediate liquidation (see our Blog, 'Why didn't Thomas Cook go into administration') has left thousands of people stranded abroad or facing uncertainty and financial loss over future bookings. The Government has stepped in to repatriate people overseas (approximately 150,000 Brits) but those who have not yet travelled are left to their own devices. Figures suggest a staggering 600,000 will be affected. The framework of consumer protection in this situation is very disjointed and confusing.

The protection of ATOL, ABTA and travel insurance are unique to the travel industry and could provide compensation for most package holiday customers:

• if covered by ATOL - both the flight and the accommodation have to be booked under a single contract which is increasingly less common in the growing on-line market.
• to those who have taken out travel insurance (although many policies don't cover cancellation due to financial failure of the travel company).
• cruises and other non-flight based packages are covered by Thomas Cook's ABTA membership.

The Government has pledged that all passengers due to return to the UK within the next 14 days will be brought home whether it is an ATOL protected package (i.e. with accommodation) or flight only, although it will not necessarily be on the same planned departure date or to the planned arrival airport. The encouraging news is that when Monarch went bust in October 2017 98% of their approximately 110,000 stranded passengers were flown home on their scheduled date.

Beyond the statutory schemes and travel insurance there are some additional background rights that apply to consumer contracts generally for any goods or services, including 'non-package' holidays.

Firstly, if the product has been paid for using credit (including a credit card) and the price of the product (not necessarily the amount paid on the card) is between £100 and £35,000 (or up to £60,260 for loans that are specific to the goods being purchased), Section 75 of the Consumer Credit Act 1974 makes the credit provider equally liable as the supplier for any failure to supply the goods or services to the required standard. This will include a liability to pay reasonable expenses incurred as a result of a breach of the supply agreement, for example, overnight accommodation if flights are cancelled. If there is any dispute about the credit company's liability or the amount of compensation offered, the consumer can make a complaint to the Financial Services Ombudsman.

If payment was made by debit card this is not a credit purchase so Section 75 doesn't apply. However, some banks will apply a chargeback through their agreement with the supplier which enables them to recover the amount paid by debit card from the supplier's bank account. This can, however, be a bit hit and miss as availability of chargeback depends upon the particular card issuer's agreement with the retailer - and there needs to be sufficient funds available in the supplier's account to meet the chargeback (which is, of course, unlikely in the case of insolvency).

Whilst statutory compensation will apply to delayed/cancelled flights (see our previous blog re: American Airlines) this requires the airline to pay compensation, which in the case of Thomas Cook isn't going to be of any real practical benefit unless, by some miracle, funds are available to pay unsecured creditors' claims.

Every personal situation will be different and many will require co-operation and advice from the various agencies and organisations involved. If any specific advice is required please contact either Kristy Ainge or Eamon Sullivan in our Litigation Department.

The general lessons however are to think about what industry/trade schemes are available when making a major purchase (e.g. ATOL and ABTA) and how paying with a credit card (even if it is your intention to pay off the balance in full) can give you greater protection if it all goes wrong.