Mark Pestronk
Q: When do the DOT's new refund rules go into effect? Have there been any court cases seeking to block the rule? Can you explain exactly how the rules affect travel agencies?
A: The new rules go into effect on Monday, Oct. 28. Unlike other consumer protection rules adopted by the Biden administration, the rules have not been subject to a court case trying to block them from going into effect.
Travel agencies that are the merchants of record are responsible for refunds when flights (to, from or within the U.S.) are canceled or undergo a "significant change." (You can find the definition of that term here.)
As for the "merchant of record," the DOT defines it as "the entity responsible for processing payments by consumers for airfare as shown in the consumer's financial charge statements, such as debit or credit card charge statements." In other words, if you charge a ticket (or a package containing a ticket) to your agency's own credit card merchant account, you are the merchant of record.
However, the DOT apparently means more than credit or debit card merchant. According to the DOT, "For transactions paid by a payment other than credit cards or debit cards, the transaction receipt provided to consumers should list the entity that is responsible. In that regard, if the consumer purchased the ticket with cash or check, the entity that issued the receipt should be responsible for refunds."
So if the client pays your agency by check, cash or bank transfer and you issue a receipt, the agency is also the merchant of record. Although most tickets are paid for by credit card using the carrier (via ARC) as the merchant of record, it is not at all unusual for an agency to accept checks and the like, especially for tours, FITs, consolidator fares and meetings and incentive travel.
If your agency must provide the refund because it was the merchant of record, you must do so even if you are no longer holding the client's funds, and even if the airline fails to reimburse you. The rules issued by the DOT in April did not even mention when or if the airline had to reimburse the agency.
However, in August the DOT modified its rules to provide that, when a client makes a refund request related to a "significant change" and the agency that was the merchant of record no longer possesses the client's funds, the carrier must "promptly" transfer the funds to the travel agency. I doubt that the process will work smoothly.
The agency's deadlines for refunds are seven days from carrier notification for credit card sales and 20 days from notification for debit, check or cash sales.
One bright spot is that, when you owe the refund, as long as you first inform the client that they are entitled to a refund you can instead offer them a credit or voucher provided it is good for at least five years and you fully disclose all restrictions.