Arthur's Blog: Paying by Credit Card Might Not Protect You Entirely When an Operator Goes Bankrupt

When Club ABC Tours went bankrupt a couple of weeks ago, I immediately wrote about the tragic event on this blog and strongly advised that prudent persons should always pay with a credit card -- not in cash, and not with a debit card, but with a credit card -- when they book a tour, even a tour with a distinguished company. Club ABC Tours had been in business for over 50 years, and no one expected them to go under. 

I immediately was challenged by several readers, who pointed out that even a credit card payment is not always a safe way to pay for travel. After looking into the matter (and consulting with Ed Perkins, distinguished travel commentator on these matters), I have concluded that persons challenging my view were partly (but only partly) right. 

The federal Truth in Lending Act requires that credit card companies make you whole in the event that you do not receive the product for which you paid with a credit card. So that's a strong endorsement for using credit cards when buying a tour. 

Trouble is that the Truth in Lending Act also requires that you must make your claim against the credit card company within 60 days after you have been billed for the payment. So if, for example, you book a tour and pay for it with a credit card a full six months before you learn that the tour operator has gone belly up, you are not entitled to a refund of your payment from the credit card company.

The question arises: Do credit card companies pay off even if the card was used MORE than 60 days in advance of the bankruptcy? On that, there's considerable dispute. Numerous travelers have told me of generous, kind-hearted, reputation-sensitive credit card companies that pay off regardless of how long ago was the use of their credit card. Other readers have stoutly insisted that they know of credit card companies that have been sticklers about the 60-day cut-off -- and have denied reimbursement. There is apparently no consensus of opinion about this, no statistics possessed by anyone, and it is an open and purely speculative question as to whether American Express, Visa, MasterCard, Discover, et al, will usually pay off even if you have discovered the bankruptcy, and been injured by it, more than 60 days after the use of your credit card.

That being said, it's still prudent to make payments by credit card -- and not in cash or by debit card (the latter regarded as the equivalent of a cash payment). And it's even wiser to take out a cancellation insurance policy that covers financial default by a supplier. But you must buy that insurance policy from an independent company, and not from or through the tour operator. Many insurance policies contain provisions that they do not cover financial insolvency of the company that sold the policy.