No Recourse to Travel Compensation Fund for Loyalty Points Program Provider

by Dentons
Contact

The Ontario Divisional Court recently overturned a decision of the Ontario Licensing and Appeals Tribunal that had required the Travel Industry Council of Ontario (“TICO”) to compensate a loyalty program provider for the cost of travel services with bankrupt travel services provider.  The loyalty program provider paid for these travel services when its members redeemed points for travel services. The Divisional Court concluded that the loyalty program provider was not the “customer” who could make claims on the Travel Industry Compensation Fund because the loyalty program provider was not directly involved in the booking of the travel services and did not receive detailed invoices with respect to the travel services booked for by the members of the points program.

Overview

TICO administers the Travel Industry Compensation Fund.  The Compensation Fund provides reimbursement of last resort for travel services arranged by or through an Ontario registered travel agent are not provided due to the bankruptcy, insolvency or closure of an Ontario-registered travel agent or travel wholesaler or an end supplier airline or cruise line.

The issue in this case was whether a credit card issuer that offered loyalty points that could be redeemed for travel could make a claim on the Compensation Fund when the travel services provider made an assignment in bankruptcy. The CEO, President and Registrar of TICO had stated in writing that the credit card issuer was eligible to make a claim. The Licensing Appeals Tribunal also concluded that the credit card issuer was entitled to make a claim. The Divisional Court disagreed.

This case is of obvious importance to providers of loyalty programs in which points can be redeemed for travel. The case may also have broader implications for organizations that purchase travel on behalf of their members or employees. These organizations may wish to seek advice on the structure of their arrangements to ensure that they are not disqualified from making claims against the Compensation Fund.

This case is also interesting from a data governance perspective. The loyalty program permitted members to make travel arrangements directly with a registered travel agent. The loyalty program provider received data on the amount of points redeemed but apart from making payment was not otherwise involved in making the arrangements for the travel services. This has obvious advantages to the consumer and permits the loyalty program provider to control the amount of data it is receiving about the choices made by any particular member. However, the result was that the loyalty program provider ended up not being treated as the “customer” for the purposes of making a claim on the Travel Industry Compensation Fund and the member was also disqualified because the purchase was made with points.

Facts

The card issuer in this case maintained a points-based loyalty program for its card holders. Points could be redeemed for travel services. The card issuer entered into an agreement with an Ontario travel agent registered with TICO. The terms of that agreement provided that the card issuer would reimburse the travel agent for points redeemed with the travel agent for travel services at the actual cost of the travel services. In simple terms, the card holder arranged travel with the travel agent using the loyalty points and the card issuer paid for those travel services.

When the travel service provider went bankrupt, the card issuer reinstated all of the points that had been redeemed for pending travel services with the bankrupt provider. The card issuer then made a claim on the Compensation Fund.

Issue

The case turned on whether the credit card issuer was the “customer” who was eligible to make a claim on the Compensation Fund. “Customer” is not defined in the regulation governing the Compensation Fund.

Prior to the bankruptcy of the travel service provider, the card issuer had sought clarification from TICO regarding whether it would be covered in the event of the bankruptcy of the travel agent. The issue is important for any significant purchaser of travel services. If recourse to the Compensation Fund is not available, then the organization must self-insure or arrange for insurance. The President, CEO and Registrar of TICO advised the card issuer that the card issuer would be entitled to make claims from the Compensation Fund if it were the party purchasing the travel services.

However, when the card issuer made a claim, TICO took the position that it was the card holder that was purchasing the travel services and that the card issuer was not purchasing the travel services “on behalf” of the card holder when it reimbursed the travel agent.

If the credit card issuer was not eligible to make a claim then no claim could be made because the card holders were not eligible to make a claim. The regulations governing the Compensation Fund preclude reimbursement for travel services obtained with a voucher, certificate, or coupon.

Ontario Divisional Court Decision

The court reviewed how the term “customer” was used in various parts of the regulation governing the Compensation Fund. For example:

  • Information about the total amount the customer will be required to pay for the travel services must be disclosed to the customer.
  • Before entering into an agreement with the customer and taking payment, the travel agent must “disclose conditions related to the purchase of travel services, the total price, the travel dates and a fair and accurate description of the travel services to be provided, explain requirements or limitations relating to transfer or cancellation of travel services, advise the customer about the availability of trip cancellation insurance and out-of-province health insurance, and advise about travel documents for foreign travel, among other information.”
  • The travel agent is obliged to advise customers of changes after the purchase of travel services.
  • The travel agent must provide the customer with a statement or invoice that includes the name of the customer who purchased the travel service and whether the customer was offered trip cancellation insurance and whether it was purchased or declined.
  • The travel agent must take reasonable measures to verify the condition of accommodation to ensure its quality at the time the customer uses the travel services.

Based on the foregoing, the Divisional Court concluded that the term “customer” meant a member of the travelling public “who deals with the travel agent to arrange the purchase of travel services, who is invoiced for the travel, and who will be affected by changes in prices or factors affecting the quality or availability of the services purchased.”

The Divisional Court concluded that the credit card issuer had no dealings with the travel agent to select and arrange the travel services for the card holders. The court characterized the card issuer as “simply a medium to a payment scheme whereby reward points were converted to cash.”

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:

Dentons
Contact
more
less

Dentons on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.