CATO Calls Out “70s Era” Travel Industry Act

Jean Hébert as Executive Director, CATO.

The Canadian Association of Tour Operators (CATO), led by Jean Hébert, has responded to the Travel Industry Council of Ontario's (TICO) Funding Framework and Fee Review Proposals.

CATO stated there is "nothing in substance to improve consumer protection," referring to it as "a proposal for cosmetic changes that ignores the fundamental problem of an outdated Ontario Travel Industry Act (TIA). A proposal that is more smoke and mirror."

"We call on the Ontario government to initiate a thorough review of the TIA. We ask the Ontario government to fix this 40-year-old legislation and its regulations, which does not reflect the environment of the Ontario travel industry today. The TIA was designed in the 70s in the era of a cash and cheque economy. Today, over 90% of transactions are using credit cards or other forms of e-commerce.

Furthermore, we ask the Ontario government to act as an advocate for travel consumers, and to engage its federal counterparts in a discussion of solutions to protect Canadian travellers, especially travel on federally regulated end-suppliers (air and cruise bookings) and given its exclusive responsibility for legislating the airlines and cruise lines service providers under its jurisdiction."

CATO said it "cannot support a proposal for change that fails to respond to the travel industry's repeated demands."

"We can no longer be the only ones to bear the brunt of an inadequate, outdated, and costly system. In addition, how can we support a proposal that fails to provide full report about the consumer survey, the actuary report, and especially the report from the Ontario Auditor General. Transparency is once again scorned!"

On 05OCT 2023, Open Jaw reported that TICO unveiled recommendations to revamp its funding framework. TICO said the proposals offer a balanced approach to meet the needs of both consumers and the industry.

At the time, TICO stated that the proposal reflected its "commitment to develop a fair and modern funding model that reflects cost recovery, delivers value to stakeholders during this time of industry renewal, and continues to keep consumer protection at the forefront."

ACTA also calls for a complete overhaul of the Ontario Travel Industry Act.

"Overall, we find TICO's proposals to be essentially cosmetic changes," said ACTA President Wendy Paradis. 

TICO's five key proposals are as follows: 

    Compensation Fund:

  1. Decrease Compensation Fund payments to $0.05/$1,000 from $0.25/$1,000 of Ontario Gross Sales.
  2. Remove non-contributing end-supplier coverage (airlines and cruise lines) from the Compensation Fund, subject to government consideration and decision-making.
  3. Double the maximum Compensation Fund payment per person to $10,000 from $5,000 for consumers, subject to government consideration and decision-making.

    Registration Renewal Fees:

  1. Recalibrate registrant renewal fees with modernized and more equitable fee bands.

    Other:

  1. Institute new late filing fees to encourage timely submission of required documentation and ensure efficient processing.

"This review exercise only serves TICO's needs, and does not consider the needs of the industry or the improvement of consumer protection. We understand that TICO must resolve its decades-long problem of appropriating funds from the Consumer Compensation Fund to finance its operations. More than 70% of TICO's operating budget comes from this appropriation of the Fund," CATO said in a statement.

Key Dates:

  • 05OCT 2023: The proposal announcement kicked off the consultation period.
  • 10NOV 2023: End of the consultation period.
  • 01APR 2024: Targeted implementation date for specific proposed changes.

After the 05OCT announcement, TICO's Richard Smart took questions from Open Jaw's President Nina Slawek about high expenses, the rift with ACTA and why a consumer-funded model is not on the table.

CATO's Take on TICO's Funding Review Proposal:

"The proposal to reduce the travel business' contribution to the Compensation Fund from $0.25 to $0.05 is TICO's solution to regularize its financing by transferring the $0.20 difference directly to the financing of its operations. It is not a reduction per say for the travel business in total fees, it's only a financial operation for TICO to redirect from one account to another one. This operation has been called: Recalibrate registrant renewal fees, with modernized and more equitable fee bands!?

The reality is also that 65% of travel businesses will pay higher total fees to TICO. And the smaller registrant will see an increase of fees 2,5 times higher than their current fee.

In addition, the reduction in the Compensation Fund to $14M is questionable. In total most of the fees paid by the industry will be going directly to fund TICO's operation and a lot less to the Consumer Compensation Fund.

The industry has always agreed to fund the costs of regulating the travel industry to protect consumers and provide a high standard of services and products offered by travel businesses. What we've been trying to defend for a long time is essentially based on a fair sharing of the financing of TICO's operations and the Consumer Compensation Fund. 

So, if the government wants to maintain a compensation fund for travellers, it must make it more accessible, less complex, less limited, raised to a level that will enable it to deal with major unforeseen situations, and this fund must be financed by its beneficiary, the traveller.

This is an opportunity for the government to make the legislative changes it has long been calling for. In TICO's proposal, the financial burden is constantly growing on the shoulders of the Ontario small businesses.

A somewhat contradictory aspect of the proposal, TICO submits as a consideration the possibility of charging consumers a fee on the invoice for the purchase of a trip on a voluntary basis (collect) by the travel company, instead of being borne by regulation. Why and how can we ask the industry - thousands of travel businesses - to collect a fee without a minimum legislative framework to ensure its effectiveness and, above all, its uniformity? Introducing a system on a voluntary basis would be the perfect recipe for creating the biggest mess ever seen between companies in the travel sector. This possibility has already been clearly and strongly rejected by the industry.

How can you be so contradictory when you're told (for the wrong reason) that you don't want to impose a fee on the consumer, and on the other hand you say yes, you can do it! It's important to understand that a minimum charge to the consumer would be equivalent to benefiting from real protection, like buying insurance for a few dollars.

On another aspect, in its consultation document on TICO's funding structure proposals, we find TICO's comparisons of the OPC model in Quebec and its Compensation Fund to be highly subjective. In our view, the OPC model is less expensive, fairer and offers far better protection for consumers. The OPC's Compensation Fund is exclusively for the protection of the travel consumer, financed and much appreciated by the latter.

The administration cost of such a fund should also be financed by its own revenues, like any other fund, and perhaps even entrusted to its own administration, thus avoiding the risks of appropriation. We're not asking to replicate the OPC model, but if the government wants to maintain this protection and compensation tool, it can't maintain the financial burden to the detriment of our businesses. Aren't we an "Open for business" province? By making businesses pay even more, we are further reducing their competitiveness and sustainability.

The cost of protecting a $1000 trip through the OPC's Compensation Fund, which is much more efficient than the Ontario model, is not even the price of a small coffee at Tim Horton's, and offers real protection to the consumer. It's like an insurance policy paid for by the consumer who, when the fund reaches an acceptable level according to actuarial analyses, no longer must pay for this protection. In Quebec, the Fund's minimum level is $125M. How can we in Ontario conclude that the floor can only be $14M, for a much larger market? It means "protection" versus "not-true protection".

In an actuarial review five years ago, commissioned by TICO and performed by Deloitte, it was determined the target Fund size should be between $50M – $60M, with the per-person ($5K) and per event ($5M and $2M for repatriation) caps; as well as not accounting for any large registrant failures or catastrophic losses. The current Fund ($22M) is less than half the amount of the minimum target Fund size suggested by Deloitte back in 2018.

And now TICO proposes to low it down to $14M? The actuarial study commissioned by TICO was based on the last three years, corresponding to the period of the pandemic, which resulted in billions of dollars being injected by governments to avoid an economic crash that would have led to thousands of bankruptcies. Had it not been for the financial support of governments, what would have been the impact on TICO's Compensation Fund?

In addition, while it may be proposed to increase individual compensation from $5,000 to $10,000, this does not solve the protection limits based on maximum compensation per event and for the repatriation of travellers. The Vacances Sinorama case in Quebec alone resulted in a disbursement to travelers of over $24 million from the OPC fund (FICAV). In other words, the Ontario fund would have shrunk to a $10M deficit for a single debacle.

We suspect that at the $14M level, the message is clear, the Government no longer support this consumer protection tool as necessary and, coupled with a reduction of hundreds of thousands in consumer awareness expenses, there is no longer concerns about consumer protection and, an interest to keep the Compensation Fund, rather a preference to simply abolish it. Keeping the Fund at such a low level, is it still worth the high administrative costs paid by the travel industry?

A consumer contribution is the only means to grow the Compensation Fund sufficiently to account for current realities and to ensure consumers are fully protected, without any caps, in the event of a registrant failure and unforeseen events. A consumer contribution (insurance protection) is also the surest way to heighten awareness of the Fund's consumer protection and the importance of booking with a TICO registrant.

The revision exercise submitted for consultation is, so to speak, incomplete. Among other things, two of the five proposals – 2. Removal of end-supplier from the Compensation Fund and 3. Increase from $5K to $10K the per person compensation payment for consumer - are subject to additional government approval, while proposals 1,4 and 5 are scheduled to take effect on April 1, 2024. This also means that "TICO may have to reassess its fees if these proposals are not implemented. What does it mean? In addition, the recommendation 2, regarding the removal of non-contributing end-supplier coverage (air lines and cruise lines) from the Compensation Funds, doesn't address the issue arising from Section 46 of the Ontario Regulation 26/05."

Section 46: Duty of registrant who resells travel services 46. (1) If a registrant acquires rights to travel services for resale to other registrants or to customers, and the supplier fails to provide the travel services paid for by a customer, the registrant who acquired the rights for resale shall, (a) reimburse the customer; (b) provide comparable alternate travel services that are acceptable to the customer; or (c) provide the customer with a voucher, certificate, coupon or similar document that is acceptable to the customer, for future redemption towards travel services. O. Reg. 101/20, s. 5. (2)-(5) Revoked: O. Reg. 26/05, s. 46 (5). Section "c" has now been revoked now that the pandemic is cleared.

"End-suppliers (airlines and cruise lines) do not contribute to the Compensation Fund, but the proposed removal of coverage of these non-contributing end-suppliers doesn't fix the entire problem.

A failure from the end-supplier to provide the travel services paid for by a customer, the registrant is still liable and therefore this section of the regulations must be updated to be more equitable.

This is why for governments to protect Canadians during an event (including repatriation such as during the pandemic, erupting volcanos, wars, etc.), all Canadians should be covered if the federal government legislated a nominal fee (i.e. $1) be added to every booking.

In the consultation document, the data from the consumer survey leaves us perplexed as we have not been provided access to the results. Where is the transparency? The very few information provided raises even more questions and scepticism. It also lets us to believe that the consumer is not knowledgeable about the TICO Compensation Funds conditions if a registrant failed to provide a service paid by the consumer. It would also be interesting to know what the proportion of people expects a full reimbursement or only partial. On the other side, there is a full page of information, negative comments, about the Québec Legislated Consumer Pay (Contribution to a protection) Model.

IN CONCLUSION, along with its partner ACTA, CATO cannot support a proposal that ignore the current state of the Ontario travel industry and fails to modernize an outdated regulatory system."

More information on CATO's website.

 

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