What Travel Agencies Need to Know to Avoid Bond Claims

by Vic Lance
What Travel Agencies Need to Know to Avoid Bond Claims

Travel agencies in California, Virginia, Illinois, Iowa, Florida and Washington must obtain a seller of travel surety bond when getting licensed. This bond is usually required by local governing bodies, and provides protection to consumers who make use of the services of such agencies. 

The protections offered by the bond allow consumers to file a claim against an agency if they feel they have been treated dishonestly. Yet, there are many things agencies can do to take precautions and avoid having to deal with claims, which can be very hurtful for a business. 

Read on to understand how seller of travel surety bonds work and how agencies can stay out of harm's way. 

How seller of travel bonds work
Travel agencies regularly handle large amounts of their clients' money which they transfer to service provides they partner with – airline companies, cruise lines, hotels, resorts, vehicle rental services and others. When dealing with clients' money, travel agencies are expected to do so honestly, transparently and in a timely fashion. To guarantee this happens, many states require travel agencies or agents to obtain a seller of travel surety bond when getting licensed. 

The seller of travel bond, also know as a travel agency bond, is an agreement made between the travel agency, the state authority which issues licenses to travel agencies, and a surety bond company. This surety bond agreement imposes conditions on travel agencies that they must fulfill when doing business. These conditions include: 

  • Complying with state statutes and regulations that govern the business of travel agencies 
  • Forwarding clients' payments for services to the companies offering these services 
  • Providing customers with a range of options (not trying to limit or persuade them in a dishonest manner) 
  • Conducting business honestly, not misleading clients in any way, etc. 

If travel agencies violate one of the conditions of their surety bond, clients who have been wronged can file a claim against the agency's seller of travel surety bond to request compensation. 

The surety bond company then investigates the bond claim and may issue compensation to claimants up to the full amount of the bond. Bond amounts are determined individually by states – in Washington they are between $10,000 and $50,000, in Florida between $25,000 and $50,000, and in other states they are determined on a case-by-case basis. 

When a claimant receives compensation by the surety bond company, the bonded travel agency must then in turn compensate the surety for its backing. This makes bond claims a serious issue because they can place a heavy financial burden on travel agencies but also damage their reputation. 

How to avoid bond claims
But there is a lot that travel agencies can do to avoid bond claims. Consider some of the following rules to stick to when working as a travel agent. 

1. Carefully read and understand state statutes and regulations
A number of states, such as Florida or California, have a "Seller of Travel Act" incorporated in their state statutes which details the Dos and Don'ts for travel agencies. Violations of these statutes are also clearly specified therein and may include things such as: 

  • Posting false advertisements 
  • Doing business with unregistered travel companies 
  • Misleading customers and committing fraud 
  • Inappropriately using customer's funds or not forwarding them to service providers 
  • Providing false information about a customer’s booking 

Complying strictly with the conditions of your surety bond, and the state statutes is the best way you can avoid any sort of claim against your bond. 

2. Dispatch payments correctly and in a timely fashion
One of the most common causes for claims against a bond are late payments to service providers. Distributing funds correctly and in a timely fashion is one of the most important things that travel agents can do to avoid being troubled with bond claims. 

If an error is made in the booking this can usually not give rise to a claim against the bond, but if funds are not distributed correctly, customers may be entitled to file a claim against the travel agency bond. 

3. Keep documents and logs of all your dealings and payments and provide them to customers
Sometimes you may forward money to an airline or operator who then goes out of business, incurring a loss on your customers. In such an instance, clients may think they need to file a claim against your bond. 

You can easily avoid such situations by keeping records of your bank transfers and providing these to your customers along with written statements detailing when and how you disbursed their payments to another party. If you forwarded money to another travel agency, make sure to include proof of the registration of this travel agency as dealing with unregistered businesses may get you into trouble. 

In this case, customers will have to file a complaint or claim against the service provider or the travel agency who received their payment, and you will not be at fault. 

4. Communicate with your surety company regularly
Sometimes there are grey areas in which a claim may or may not be filed against a surety bond. In cases when something has gone wrong, even if you are not at fault, always make sure to contact your surety bond company and get their advice. 

Sureties usually have a lot of experts on board who know how different industries function, and who can provide you with advice. Keeping in touch with your surety can help you negotiate a situation more carefully but also confidently, and make amends to your customers if you have committed a mistake unknowingly. 

Further advice?
As a travel agent, do you have any other advice to fellow agents how they can avoid bond claims? If you do, please leave us a comment, we would like to hear your opinion!

Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert who helps travel agencies get licensed and bonded. Vic graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan’s Ross School of Business.

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