Published: 16/09/2008

The impact of high oil prices has hit travel companies and airlines pretty hard this year, with the latest in a line of high profile failures hitting the news headlines in the last week.

With the recent collapse of XL Leisure Group, Zoom Airlines and K & S Travel, it's worth understanding how you can protect yourself from similar company failures by paying for your flight or holiday with your credit card.

Before we look at the protection that paying by plastic will offer you, it's worth clarifying where you stand if the holiday company or airline you have booked with goes bust.

ATOL Protection

If you book your holiday as a package deal through a tour operator you are covered by the Civil Aviation Authority (CAA) via their Air Travel Organisers' Licencing (ATOL) Scheme. However if you are one of the growing number of people who now book their own flights and accommodation independently, paying by debit card, cheque or cash could prove a costly mistake as 'DIY' holidays are not covered by the ATOL safety net.

Getting a refund for a flight or holiday when your airline or holiday company collapses, will depend on how you paid and which card you used to pay for them.

 

If you paid by Credit Card

If you paid with a credit card, then you should contact your card provider who will in the first instance try to arrange a Visa or MasterCard chargeback. This basically means that your credit card issuer will try to obtain a refund from the account of the airline/holiday company.

However, if the company has ceased trading, it usually means that their bank account has been frozen and therefore chargeback will not be an option. In such circumstances the credit card company will give you a refund under Section 75 of the Consumer Credit Act. This gives consumers the legal right to a refund for goods and services costing between £100 and £30,000 that are not delivered.

If you paid by Debit Card

If you paid for your tickets/holiday on a Visa debit card, then the Section 75 option isn't available as it is only for credit card purchases. In this instance your only option is the chargeback route. If you have a Maestro debit card, unfortunately chargeback isn't offered with this type of debit card and your only option is to join the list of creditors of the collapsed company.

Don't assume Travel Insurance will come to your rescue

Whilst many travel policies will eagerly highlight how much they'll pay out if your flight is delayed or your luggage goes astray, be aware that many policies will exclude cover if an airline goes bust. Make sure you check with your chosen insurer before buying your policy. The Post Office travel insurance for example, covers airline failure as standard, up to a maximum of £1,500 per person as long as the flight was booked in the UK.

 

Think twice before trying to avoid the credit card surcharge

Although paying by credit card sometimes means that you'll have to pay an additional handling fee or a surcharge, the extra cost could prove to be a mere drop in the ocean compared to the hundreds or possibly thousands of pounds you could lose if the company you buy your goods or services from goes bust.

Credit card protection applies to all purchases, not just holidays

If you buy anything for between £100 and £30,000 on a credit card you automatically have valuable rights under Section 75 of the Consumer Credit Act. It means that when you buy something using your credit card, your contract is with both the trader and the card issuer.

They are both equally liable for anything that goes wrong, so you can take action against either of them to get your money back.

It's also worth knowing that, the legislation applies even if you only make a part-purchase, for example, by using your credit card to pay a deposit on something. As mentioned above, debit and charge cards are not covered by the legislation so, if you're looking to buy something for more than £100, always consider using your credit card to do it. The added peace of mind certainly makes it worthwhile as long as you pay your credit card statement in full each month.