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23 Oct 2020

Government confirms financial protection for package holiday 'refund credit notes'

family on beach

Update - 23 October 2020 - The Civil Aviation Authority has extended protection for refund credit notes for holidays cancelled up to 31 December 2020. The CAA, which runs the Atol scheme, says vouchers must be redeemed for a new booking or refunded by 30 September 2021.

Holidaymakers who accept refund credit notes (RCNs) issued for cancelled packages up to 30 September 2020 will get their money back if the travel company later collapses, the government has confirmed.

Transport Secretary Grant Shapps says the government is stepping in to protect RCNs issued by travel companies for millions of holidays cancelled due to the coronavirus pandemic.

This means that if a travel company goes bust, those left with credit notes will be refunded under the travel industry's Atol scheme, which is managed by the Civil Aviation Authority (CAA) and underpinned by the government.

Since the start of the crisis, Which? has been calling for the government to confirm whether RCNs are financially guaranteed, but until now it has refused to say one way or the other, forcing us to caution holidaymakers against accepting them.

But the confirmation that credit notes have the same financial protection as package holidays removes the risk of clients accepting a credit note, if they consider that's the best option for them.

Find more unbiased advice on travel and coronavirus, award-winning investigations, plus legal advice on holiday refunds and cancelled flights with Which? Travel

Refund credit notes should not be forced on customers

If you have already accepted, or are considering accepting a RCN, issued from 10 March to 30 September for a package holiday that includes flights, this is now covered by the Atol scheme up to 30 September 2021. Flights sold separately are not protected.

However, RCNs can't be forced on holidaymakers. Under the terms of the Package Travel Regulations 2018, you still have the right to a cash refund within 14 days of cancellation and credit notes shouldn't be automatically sent to customers requesting cash as a strategy to delay payments.

The CAA says customers are 'entitled to a cash refund and must be offered this option at the same time as a refund credit note or booking amendment'.

It added: 'We have contacted Atol holders to advise them of their responsibilities.'

A customer has the right to exchange a credit note for cash, which they must do before 30 September 2021 unless it is used to make a new booking. Thismust be made clear on the credit note itself.

Pros and cons of refund credit notes

Consumers can now be confident that their money is protected if they decide to support their tour operator by accepting a RCN, but it later goes bust.

Some tour operators are even offering up to 25% above the original cost of the booking as an incentive to holidaymakers to accept credit notes instead of cash. However, if a travel company goes bust before you rebook, you'll only get back the amount you paid.

The travel association Abta says that credit notes give companies some breathing space while safeguarding consumers' money. If they're forced to issue immediate cash refunds, Abta claims some firms will collapse and, as a result, clients will face a long wait for refunds from the CAA.

However, a RCN limits your ability to shop around when you're ready to book another holiday, albeit temporarily. Although you do have the right to exchange the credit note for cash at any time, you could miss out on a better deal with other travel firm while waiting for your refund.

Which? has found that two of the biggest tour operators, Jet2holidays and Tui, have quoted price increases for summer 2021 holidays far in excess of any rebooking incentives.

What should a refund credit note look like?

You should always ensure that what you are being offered is a RCN that retains the financial protection of your original booking.

The CAA advises that all RCNs should include your original booking details and reference number and, crucially, the expiry date of the travel company's Atol. It must be used to book another holiday or exchanged for cash before 30 September 2021, otherwise it won't be protected.

The credit note should be equal to the amount you paid for your holiday, minus any refund you've already received. It must not include any rebooking incentive, which should be documented separately as this isn't protected.

Refund credit notes aren't transferable to another individual and this should be made clear on the credit note itself, says the CAA. Where travel companies do allow customers to pass credit notes onto friends or family, the CAA says they are 'likely' to still be covered by the Atol scheme, but if a travel firm goes bust they would need to fully investigate the ownership of the credit notes, which could delay the refund.

Flight-only bookings are not protected

Only credit notes issued for flight-based packages are covered by the Atol scheme. Vouchers issued for flights sold separately or issued directly by airlines are not.

This is because tour operators are required to contribute £2.50 for every package holiday customer to the Air Travel Trust Fund and it's this money that is used by the CAA to refund or repatriate holidaymakers when a firm goes bust. The fund, which was almost wiped out by the collapse of Thomas Cook last year, is guaranteed by the government.

However, there is no similar scheme to protect passengers who buy scheduled flights, whether these are bought direct from an airline or from an agent.