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Know your rights when you charge travel costs

Recouping money is easier when vacation is charged on credit cards

By Jeff Beneke

As cancellations and bankruptcies besiege travelers, consumers are discovering the benefits -- and limitations -- of using credit cards to book their trips.

Buying an airplane or a cruise ticket is not like most other purchases. When you buy groceries or a new pair of shoes, you pay in full and walk away with your purchase. When you buy a house or a new car, you typically put down a deposit. You aren't expected to pay the full amount until just before you move in or drive away. 

Travel and credit cards

With travel, though, the system works differently. If you want to reserve a flight or a cruise ship berth, you typically pay in full and in advance -- often, well in advance. If the carrier that accepted your advance payment goes out of business before you travel, you may discover that you don't have many rights when trying to recover your money. 

Travel professionals caution that ironclad guarantees of getting you where you want, when you want and how you want can be hard to come by. For prospective travelers who want to maximize their chances of at least getting their money back when a carrier goes out of business, here are five steps they can take.

Step 1: Know your rights
Unfortunately, when it comes to dealing directly with airlines and cruise lines, you don't have many rights. If your flight or cruise is canceled, delayed or rerouted, you are at the carrier's mercy, with a few exceptions.

If you are bumped from a flight, you can qualify for "denied-boarding compensation," which is a fancy word for a modest cash payment (currently capped at $200 for domestic flights, although that figure is scheduled to double May 19 -- the first increase in 30 years). If your carrier ceases operation, you don't necessarily qualify for any compensation -- and that includes the payment you've already made.

Step 2: Charge it
There are many reasons to love the convenience and security provided by credit cards, but perhaps none so comforting as when booking big ticket travel plans. If your carrier should go out of business before you travel, your credit card could provide a federally guaranteed insurance policy. In fact, it might well be your only line of defense in seeking reimbursement.

The Fair Credit Billing Act provides an appeal mechanism for consumers who were charged for goods or services they never received. If you paid for a future cruise on a credit card and the cruise line then went bankrupt, you can file for a refund. There is one very big catch to this procedure: It is active for only 60 days after the charge was made.

Paying in advance for travel with cash or a check is risky. The act does not cover these transactions, and your options for recovering money in the event of a bankruptcy are far more limited.

For example, in April 2008, when the airline ATA declared bankruptcy, it told consumers:

"ATA customers who purchased tickets using a credit card should contact their credit card company or travel agency directly for information about how to obtain a refund for unused tickets. ATA currently is unable to provide refunds to customers who purchased tickets directly from ATA with cash or a check. These customers may be able to obtain a full or partial refund for their unused tickets by submitting a claim in ATA's Chapter 11 proceedings."

In other words, if you paid with cash or check, get in line. If and when a company is liquidated, you might be able to get some small percentage of your money back, if there is any money left over after the bigger bills have been paid.

Step 3: Wait, if you can
Travelers are often encouraged to make early reservations. For those planning to take a long cruise or fly during peak travel seasons, advance planning is often the only way to secure the dates desired. JetBlue sent e-mails to its customers on April 25 encouraging them to make holiday reservations a full eight months before Christmas.

Getting the most from the Fair Credit Billing Act

If you wish to lodge a complaint against a travel carrier for a refund on a credit card charge, you must act fast. The 60-day window to file a complaint begins on the day that your bill is sent to you.

If you want to make a reservation more than two months in advance, but would still like to feel protected by the Federal Credit Billing Act, you can get nearly a full month tacked on by simply making the purchase early in your billing cycle, weeks before the monthly cycle closes and the bill is sent.

For example, if you want to fly on Aug. 25, and the closing date on your credit card was the first business day of the month, you could buy the ticket as early as June 1 and still be covered. Since the bill covering that charge will not go out until early July, your travel date would fall well within the 60-day time frame.

The problem with booking and paying (by credit card) too far in advance is that the protection offered by the Fair Credit Billing Act has a time limit. Specifically, if your carrier goes out of business before you travel, you need to file a written complaint within 60 days after the bill containing the disputed charge was mailed to you. If you charged your ticket months ago and have long since paid the bill, the FCBA is of absolutely no good to you.

Step 4: Compare the carriers
Since the formal demise of Rule 240, U.S. airlines have been free to craft their own policies regarding delays and cancellations. Each airline's policy is spelled out in its "contract of carriage," which is essentially the detailed contract that binds passengers and the airline. You can find an airline's contract on its website. As a shortcut, enter the airline name and "contract of carriage" in a search engine. Northwest stands alone among the airlines in keeping to the original Rule 240 wording.

Some travelers make a habit of carrying a copy of their airline's contract with them when they fly. If they run into trouble, they can become instant experts on the airline's obligations.

Cruise lines and other carriers also operate under similar contracts. They were never held to the consumer friendly terms of Rule 240, however, and it shows. Royal Caribbean's ticket contract, for example, contains the following language:

"Carrier may for any reason at any time and without prior notice, cancel, advance, postpone or deviate from any scheduled sailing, port of call, destination, lodging or any activity on or off the Vessel, or substitute another vessel or port of call, destination, lodging or activity. Carrier shall not be liable for any claim whatsoever by Passenger, including but not limited to loss, compensation or refund, by reason of such cancellation, advancement, postponement, substitution or deviation."

Step 5: Consider travel insurance
When all else fails, a good travel insurance policy can help you recover money you've spent on a trip that never got off the ground. Jon Ansell, founding president of the U.S. Travel Insurance Association, suggests that "the more expensive your trip, the more likely you may want to protect your investment with travel insurance."

But a not-so-good travel policy may assure you of only additional expenses and headaches.

Take the case of Satya Jeet, who needs to get from Greensboro, N.C., to Burbank, Calif., in June. He booked a flight last February on Skybus. Two months later he received an e-mail from Skybus informing him that the company had ceased operations and would not be processing refunds. The e-mail instructed him to contact his credit card company about a refund, which he did.

Satya wasn't too worried because when he bought his ticket, he also purchased an AIG travel insurance policy offered by the airline. "I was concerned about covering my luggage," he says, "but I also wanted to be protected against a canceled flight." He choose a policy that offered the necessary protection. Or at least he thought he did.

Rule 240 and deregulation

Air travelers once had protection against flight cancellations. This came in the form of a federal provision known as Rule 240 -- a promise by U.S. airlines that if they couldn't get ticketed passengers to their destinations on time, they would put them on another flight as soon as possible that would get them there, even if it was on another airline.

Airline deregulation in 1978 marked the formal end of the Rule 240 requirement, and airlines that started flying after 1978, such as JetBlue and Southwest, were never bound by the policy. Over the years, most of the older airlines have  backed away from making such generous promises to stranded travelers.

Though most flifers, and likely a good many ticket agents, have never heard of Rule 240, some regular travelers continue trying to invoke it when faced with a cancellation, sometimes with success. According to travel writer Peter Greenberg, even though passengers can no longer demand that an airline adhere to Rule 240, "it does get implemented" on occasion. "If you don't ask," he warns, "you don't get." So you might as well ask.

AIG told Satya that it was unable to help. "AIG said the contract they had with Skybus did not cover this scenario," even though Satya felt the policy promised coverage if the carrier went bankrupt. AIG offered to refund the cost of the insurance policy.

Satya booked another flight at a much higher fare. He has disputed the original charge on his credit card, but it may be too late to receive a refund. He also filed a claim with AIG, but is not confident that any good will come of the effort.

Airlines, cruise lines and other travel providers frequently sell insurance policies. Travel experts, however, caution that the best and most affordable coverage usually is offered by independent travel insurers. Consumers who buy policies directly from the carrier often find themselves in Satya's shoes -- thinking they were covered when they weren't.

Travel insurance policies can cover a wide range of potential problems, from medical emergencies to terrorist attacks to carrier bankruptcies. Travel experts say consumers must pay close attention to the coverage they pay for. Here are some tips:

•  Compare policies and insurers, just as you would when choosing auto or home insurance. Leading insurance comparison sites include insuremytrip.comquotewright.com and squaremouth.com.
•  Buy your policy through an independent insurer, not through the carrier.
•  Act swiftly. Many types of coverage must be bought within days or weeks of purchasing tickets.
•  Consider trip cancellation insurance if you are putting down money for a trip far in advance, especially if the ticket is nonrefundable. That way you will be covered after the 60-day, credit card protection passes, as well as against other problems that could arise, such as loss of job, injury or sickness, or change of mind.
•  Make sure your airline carrier or cruise line is included in the coverage. One major travel insurer's trip cancellation policy did not cover two airlines (Aloha and ATA) that recently went out of business.
•  Buy a policy that includes coverage against "financial default" by the carrier.

With any policy, be sure to read the fine print, paying as much attention to what is excluded as to what is included. If problems arise, contact the insurer as soon as possible.

Related stories: "Taking a foreign vacation with a credit card," "Top issuers foreign transaction fees"

Published: May 5, 2008


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Updated: 12-03-2016


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