Comp Fund coverage is “badly broken” and here’s why: Vanderlubbe
Richard Vanderlubbe

Comp Fund coverage is “badly broken” and here’s why: Vanderlubbe

TORONTO— “The industry has to wake up, otherwise nothing’s going to change until there’s a disaster.”

This dire warning came courtesy of Richard Vanderlubbe, President of at a media briefing in Toronto yesterday about the Ontario Travel Industry Compensation Fund and the urgent need for an upheaval. Vanderlubbe, who served on TICO’s board from 2001-2006 and again from 2009-2019, says he has spent much of his career lobbying for changes to the Fund without seeing any results. And now, with a newly appointed Minister of Government and Consumer Services in place, and the government still dragging its feet to repeal and/or add regulations to the 45-year-old Travel Industry Act (TIA) following a comprehensive review back in 2017, Vanderlubbe says the time is now to finally modernize the Act and either fix or get rid of the Fund altogether.

“At the end of the day we have a problem with political will. This is not an Ontario government problem, it’s not a provincial issue – it’s a global industry,” he said.

Though Vanderlubbe says the issues with the Fund are vast and complex, at the heart of the matter is the financial burden that’s put on those who finance it – Ontario’s registered travel agents and travel wholesalers. As per the current funding model, agents and wholesalers are paying $0.25 per $1,000 of gross sales, irrespective of risk, their business model or their track record of compliance with regulations.

This simple approach to funding may have worked in 1974 when the Travel Industry Act was first introduced and when most travel transactions were paid for in cash. But by today’s standards, with credit card sales estimated at 93% and the purchase of airline tickets shifting to direct, Fund coverage is “badly broken”, says Vanderlubbe.

It does not take into account the level of advance purchase today versus the 1970s, or the level of credit card use where the end supplier is the merchant, he argues. Nor does the outdated funding model contemplate the level of funds passed earlier to federally regulated airlines, or the funds passed outside Ontario, let alone outside Canada. Coverage has since been extended to failures of airlines and cruise lines, neither of which currently pay into the Fund. And no one in the 1970s could have foreseen the Internet and consumers’ ability to easily book with end suppliers directly or companies outside Ontario and Canada.

All this, says Vanderlubbe, results in an unfair burden on travel agencies and wholesalers, who are paying the entire cost of failures of their competitors and suppliers. In no other industry or jurisdiction does this exist, he adds.

Even more frustrating is the fact that the Fund covers and pays out very little, with 7x the cost of administration versus the claims paid to consumers. The Fund payout is limited to a maximum of $5,000 per claimant (not enough to cover the cost of many tour packages today, he points out) and is capped at a maximum $5 million (plus $2 million for repatriation) per event. Credit card companies are now the prime consumer protection vehicle for travel purchases. As such, TICO, which administers the Compensation Fund, has paid out only $14.3 million in claims from 1998 to 2019, and yet Vanderlubbe says it has cost the industry $106 million in contributions and fees, including investment income on those fees.

In response, Richard Smart, President and CEO of TICO, told Travelweek that while one of the cornerstones of Ontario’s travel consumer protection is the Compensation Fund, TICO’s activities go far beyond that one area.

“Each day, our team is involved with monitoring the industry to ensure compliance, helping consumers with complaints and other concerns, and ensuring that individuals operating outside the law are held to account. In part, because of these activities, Compensation Fund claims have been relatively low over the years,” said Smart.

TICO is in favour of a consumer co-pay model much like the one previously implemented in Quebec (Quebec’s Compensation Fund currently sits at about $150 million compared to Ontario’s approximate $21 million). Smart told Travelweek back in July 2019 following TICO’s AGM that during the consultation period before Bill 166 was passed, the organization provided two submissions to government and a consumer co-pay model was one of the recommendations made by TICO.

“While the existing TIA has served consumers and industry well, we have a unique opportunity, through the regulatory review, to look at the realities of today’s travel marketplace and offer modern consumer protection that is in line with current realities,” he said. “A consumer co-pay model is one option that may allow for expanded coverage and enhanced consumer protection by the Compensation Fund.”

This sentiment is widely shared among Ontario’s tour operators who, according to Pierre LePage, Executive Director of the Canadian Association of Tour Operators (CATO), are faced with three additional burdens: financial, regulatory and competitive. Tour operators, as well as travel agents, are required to maintain minimum working capital, retain trust monies for travel booked, submit audited financial statements to TICO on a regular basis, and on top of that pay into the Compensation Fund.

All this, especially for smaller businesses, is putting payors at a disadvantage from the get-go.

“CATO has long advocated for the introduction of a consumer contribution model of funding for the Compensation Fund and, by extension, a large part of TICO itself,” LePage told Travelweek. “The long-term impact of such a program would provide greatly expanded and superior protection to consumers without limitations, secure TICO funding, grow the Compensation Fun to the point where it might be properly promoted and self-sustaining, reduce the burden on tour operators and travel agencies, and provide a true competitive advantage to Ontario-registered travel sellers.”

So what now? What’s the easy fix? Vanderlubbe says whether the Ontario government makes changes to the funding model or eliminates the Fund altogether (only Ontario, Quebec and B.C. have a regime in place to protect travel purchases), he’s all for it. “Anything would be better than the status quo,” he said, adding that with the recent demise of Thomas Cook, a similar scenario in Canada would result in upwards of 24,000+ stranded passengers, a hike in airfares and an influx of claims coming into TICO. “There is no reason why one sector should be responsible for all consumer protection. I can go either way, as long as it’s fair.”

To read more about the many challenges of Ontario’s current funding model, look for the Nov. 14, 2019 issue of Travelweek.

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