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If you pay for a holiday by credit card and the company goes bust can you claim your money back?

When a travel company goes bust and you paid them by credit card you may be able to claim back the cost either through section 75 or, if you bought a package holiday, through ATOL.

However, there are exceptions in both cases.

Section 75

Section 75 of the Consumer Credit Act 1974 says that your credit card provider and the retailer are equally responsible for seeing that you get what you've paid for.

If a travel company goes bust, meaning that they can't fulfil the part of your holiday you paid for and can't refund you, this is a classic instance where you may be able to claim the amount back from your credit card provider under section 75.

Purchases between £100 and £30,000 are covered and you can contact the card issuer to begin compensation proceedings.

However, there are a couple of important exceptions to this.

1. Is there a direct relationship?

When you buy tickets by credit card but through a travel agent you're sometimes not entitled to section 75 compensation.

The travel agent constitues a third party between you and the supplier of the goods or service and, for section 75 to apply, there needs to a simple relationship between the customer and the retailer.

This is the same reason that section 75 doesn't apply to purchases from third-party payment sites such as PayPal and Amazon Marketplace.

This one can sometimes be a little complicated, though so don't assume that you're not covered.

For example, buying a holiday through a tour operator would be covered under Section 75 as the tour operator is providing the packaged holiday.

2. Is the purchase really over £100?

Additionally, complications can arise when purchasing airline tickets.

Often return flights are actually sold as two single tickets and, while the total transaction charge may be over £100, the individual services bought could be less.

In this case, Section 75 wouldn't apply if the single tickets cost less than £100.

This really depends on how the flight is sold, however, as specifically sold return flight tickets that cost over £100 should be covered.

It's a situation that's affected by a Section 75 rule that states items bought together as a set, where singles cost less than £100, but the set costs £100 or more, are covered.

However, airline flight tickets, even when bought together and, confusingly, even if technically one ticket is out and the other is the return, may not necessarily be considered a set.

ATOL protection

Holidays bought as a package deal and paid for in a single credit card transaction are protected under the Air Travel Organisers' Licensing scheme (ATOL) .

The Civil Aviation Authority (CAA) introduced ATOL as a way to protect the some 26 million people in the UK who buy flights and holidays every year from being stranded abroad or losing their money.

ATOL is the largest travel protection scheme in the country. All travel firms who sell air holidays and flights must hold a licence issued by the CAA. If a company then goes under, the CAA assumes responsibility for making refunds and repatriating holidaymakers.

These monies come from the Air Travel Trust Fund which is made up of a £2.50 per person contribution known as the ATOL Protection Contribution. Licensees must pay this fee on every booking they receive.

Again, though, whether you'll be covered depends on two factors.

1. Is it package or 'tailormade'?

While ATOL should, in theory, cover all holidays from tour operators that hold a license from the CAA, in practice this has not been the case.

Instead, the best way to tell a package holiday is whether it's been paid for in one transaction. When you're paying in multiple transactions - one for the flight, one for accommodation etc - chances are it's not a package holiday.

Unfortunately, though the definition of a package holiday is a bit more complicated than that.

Many travel agents now advertise 'tailormade', 'pyramid' or 'dynamic' holiday deals which means that the agent will basically make all those multiple transactions for you.

Therefore, these don't count as 'real' package holidays.

The CAA lost a court case with the Travel Republic company regarding the extent of coverage provided by ATOL.

The High Court ruled that only people who had paid for their accommodation, flights and car hire in a single credit card transaction were entitled to a refund even if the travel provider has a CAA licence.

More than 90% of holidays were protected by ATOL ten years ago.

This has fallen to 50% in recent years as booking in multiple transactions - either online or through a 'tailormade' deal - become the norm so always double check before assuming that you're ATOL protected.

2. Did you get an ATOL receipt?

The only way to really check that you're covered, though, is by getting an ATOL receipt when you buy your holiday.

The ATOL holder or their agent must give you a receipt for the scheme once you pay for a protected flight or a package holiday.

That's the case even if you're just paying a deposit so look out for the receipt in with your holiday paperwork and be sure to keep hold of it.

The receipt will include the name of the licensed firm you've booked with and their ATOL number.

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