Transport Committee on Oct. 5th, 2006

[Don Bell, Liberal, North Vancouver, BC]

So the compensation fund is like an insurance fund, in which it's not a significant portion of the airfare that's stuck aside--or is it? Is it a small amount, like insurance, that's $10 per order or something similar, because the chance of failure is small? Do they build the fund to a point, and when that fund hits a certain number of dollars, they stop collecting it? Does the fund build up in perpetuity, or is it capped?

[Michael Pepper]

I can speak to the fund in Ontario. I want to give you some background, because there has been legislation in Ontario since 1974, a provincial travel act that provides for a compensation fund to reimburse consumers in the event of the insolvency of a travel agency or the wholesaler—because that was where the risk was.

There are limits on the fund with respect to payouts. The limit on any failure is $5,000 per person and $5 million per event. There is no cap on the fund. In fact, since we received delegation to self-manage the industry back in 1997, the fund has gone from zero to $30 million. We've really knuckled down on the travel agencies and looked at the risk of the industry, making sure that consumers' moneys are held in trust at the travel agency and wholesaler level.

Our fund has now reached a level of $30 million. We've actually reduced the cost twice. We've given an 80% reduction, but it is financed by—

[Don Bell, Liberal, North Vancouver, BC]

Eighty percent?

[Michael Pepper]

An 80% reduction.

[Don Bell, Liberal, North Vancouver, BC]

Thank you. In the fee?

[Michael Pepper]

It is financed by the industry. It's collected and remitted to the Travel Industry Council by the industry on gross sales. So that's the formula.

[Christiane Théberge]

I can speak to B.C. and Quebec.

The B.C. fund is more recent than the Ontario one. It was put in place, I'd say, two or three years ago. It's also funded by the industry. It's funded by the travel agencies and the wholesalers. It's also a certain percentage of their gross sales. There's no limit to it, but it will repay $5,000 per consumer, and $2 million for an event happening such as--

[Don Bell, Liberal, North Vancouver, BC]

I'm thinking of the carriers, or the consumer, let's say, who's paying this, because really it's the consumer who is having this added on, or is it a percentage of the price?

[Christiane Théberge]

The B.C. fund and the Ontario fund are funded by the industry. They are funded by the travel agencies and the wholesalers.

The Quebec fund is a consumer-paid fund. It's the only one that's paid by the consumer. Whenever a consumer buys a travel service from a travel agency, the consumer will pay 3.5% of the total cost of the travel service.

[Don Bell, Liberal, North Vancouver, BC]

So there's no cap, in other words.

[Christiane Théberge]

There's no cap.

[Don Bell, Liberal, North Vancouver, BC]

So they just keep paying in perpetuity, and you end up with this--

[Christiane Théberge]

Yes, but those funds are recent. The Quebec fund was put in place two years ago, and the B.C. fund approximately three years ago. So those funds are quite recent.

[Don Bell, Liberal, North Vancouver, BC]

I'm thinking of workmen's compensation funds in B.C., which is an entirely different issue, but it's an issue I know, for employers. When the fund gets to a certain point and you can cover all projected eventualities, do you then keep collecting it, unless there's a drawdown?

[Christiane Théberge]

No. In B.C. they have planned that in fact a licensee will stop paying after three years. So if you renew, a new licensee will pay, but it will be for three years only. So it's a certain form of cap.

[The Chair, Conservative, Merv Tweed]

Monsieur Lussier.

[Marcel Lussier, Bloc, Brossard—La Prairie, QC]

In your recommendation on page 6, you state “[...] that fares advertised by airlines should represent the total cost of services [...]” However, on page 5, you refer to “the requirement to fully disclose, with details”.

Did you forget to include in your recommendation that the total cost should also be indicated with details?

[Christiane Théberge]

There are two possible solutions, two schools of thought.

Perhaps Michael could explain the practice in Ontario to you, whereby travel agents have a choice to either include the total cost and the details or the total cost alone in their advertisements.

We want consumers to see the total cost. If the airline wants to add details, it simply has to do so. But what matters to us is that the total cost be visible.

[Marie-Hélène Beaulieu]

I would like to add that this information should not be written in such a fine print that people need a magnifying glass to read it.

[Marcel Lussier, Bloc, Brossard—La Prairie, QC]

Let us assume we were to include within the bill a section on a federal compensation fund. If I make a claim, I am firstly protected through my credit card, because I am a member of the Ordre des ingénieurs du Québec, and then there is additional protection guaranteed by the provincial protection fund. This would basically involve a third federal compensation fund.

How would the settlement be broken down, if I make a claim?

[Christiane Théberge]

I will refer to how things are done today.

First, I am not sure that you would be protected through your credit card. I recall when Jetsgo went bankrupt, that we met with credit card company representatives. Some paid, others did not. So there is no certainty on that front.

I also clearly recall Air Canada receiving bankruptcy protection. When we met with credit card company representatives, they clearly stated that they would not be able to offer any reimbursements in the case of that type of bankruptcy.

So it is very arbitrary. The contract in no way stipulates that they must pay. Nowhere is it indicated in a contract that banks must reimburse their client. It is very random. People are protected if these institutions feel like protecting them.

When Jetsgo went bankrupt, for instance, when clients had paid by credit card, it was the credit card companies which paid first.

[Marcel Lussier, Bloc, Brossard—La Prairie, QC]

What do you mean by “paid first”?

[Christiane Théberge]

Yes, indeed, it did pay. The institution compensated the client. If the client claimed compensation from the fund, he had to prove that he did not claim compensation from the institution which issued the credit card. So the consumer was compensated from the compensation fund, but this only happened when no other compensation was claimed. At least that's how it works in Quebec.

I don't know if it is the same in Ontario. Perhaps Michael can tell us.

[Marie-Hélène Beaulieu]

I would like to give you a couple of statistics. When Jetsgo went bankrupt, 1,422 Quebec travellers claimed compensation from the Consumer Protection Bureau Fund. One thousand three hundred and eighty-four cases were processed, and of that number, 685 people were compensated. All the other ones were lucky because they were probably compensated by a third party. So nearly 50% of travellers had received compensation from the compensation fund.

[Marcel Lussier, Bloc, Brossard—La Prairie, QC]

When you say that they were compensated by a third party, whom are you referring to?