No Recourse to Travel Compensation Fund for Loyalty Points Program Provider

by Dentons

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.


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.


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.


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.

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