CATO blasts TICO’s proposed funding model, calls for reforms to Travel Industry Act

The Canadian Association of Tour Operators (CATO) is calling on the Ontario government to “fix” the 40-year-old Travel Industry Act (TIA), a piece of legislation it says “does not reflect the environment of the Ontario travel industry today.”

In a nearly 2,000-word-long document shared with media on Tuesday (Oct. 31), Jean Hébert, CATO’s executive director, took aim at the Travel Industry Council of Ontario (TICO) and the review of its funding framework and Compensation Fund that is currently underway.  

This review, announced last year, “only serves TICO’s needs, and does not consider the needs of the industry or the improvement of consumer protection,” Hébert wrote.

“We understand that TICO must resolve its decades-long problem of appropriating funds from the Consumer Compensation Fund to finance its operations,” Hébert wrote, stating that than 70 per cent of TICO's operating budget comes from appropriating the Fund.

Echoing feedback shared by the Association of Canadian Travel Agencies and Travel Advisors (ACTA), TICO’s proposed funding framework and review amounts to nothing but “cosmetic changes” that ignore the “fundamental problem” – this being the Travel Industry Act, Hébert wrote.

READ MORE: “Band aids on a broken system”: ACTA shares feedback on TICO funding, fee review

“The TIA was designed in the ’70s in the era of a cash and cheque economy,” Hébert wrote. “Today, over 90 per cent of transactions are using credit cards or other forms of e-commerce.”

CATO is therefore calling on Ontario 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).

“CATO cannot support a proposal for change that fails to respond to the travel industry's repeated demands,” Hébert wrote. “We can no longer be the only ones to bear the brunt of an inadequate, outdated, and costly system.”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!”

TICO’s proposed funding model

Last month, TICO released its proposal for a future funding model, which includes five key points:

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.

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

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

In a statement at the time, TICO’s CEO Richard Smart positioned the proposal as 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.”

Tell us how you really feel

Hébert shared his thoughts about the proposed model in his press release yesterday.

For starters, he said the notion to reduce the 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,” Hébert wrote. “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!?”

READ MORE: TICO CEO Richard Smart unpacks proposal for future funding; consumer pay model a no-go

He said the reality is also that 65 per cent 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,”  Hébert wrote.

He also called the reduction in the Compensation Fund to $14 million “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,” Hébert wrote.

“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,” Hébert continued. “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.”

Hébert called the situation “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,” he wrote.

“The biggest mess ever seen”

CATO’s executive director also highlights “a somewhat contradictory aspect” of TICO’s proposal – the possibility of charging consumers a fee for the purchase of a trip on a voluntary basis (to be collected) 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?”  Hébert wrote. “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.”

Not even the price of a Tim Hortons coffee

Hébert also finds 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,” he wrote. “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…and perhaps even entrusted to its own administration, thus avoiding the risks of appropriation.”  

“The cost of protecting a $1,000 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 Hortons, and offers real protection to the consumer,” Hébert wrote. “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 $125 million. How can we in Ontario conclude that the floor can only be $14 million, for a much larger market? It means ‘protection’ versus ‘not-true protection.’”

In a review five years ago, commissioned by TICO and performed by Deloitte, it was determined the target Fund size should be between $50 – $60 million, with the per-person ($5,000) and per event (five and two million for repatriation) caps; as well as not accounting for any large registrant failures or catastrophic losses, Hébert outlined.

“The current Fund ($22 million) is less than half the amount of the minimum target Fund size suggested by Deloitte back in 2018,” he wrote.

“And now TICO proposes to low it down to $14 million? 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?” Hébert wrote.

At the $14 million-dollar 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,” Hébert wrote.

“Keeping the Fund at such a low level, is it still worth the high administrative costs paid by the travel industry?” he asked.

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,” he wrote.

It’s also “the surest way to heighten awareness of the Fund’s consumer protection and the importance of booking with a TICO registrant.”

Dancing around the problem

Hébert says the proposal submitted for consultation is also “incomplete.”

He pointed out how two of the five proposals – the removal of end-suppliers from the Compensation Fund and the $5,000 to $10,000 increase 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.

It means "TICO may have to reassess its fees if these proposals are not implemented,” Hébert wrote. “What does it mean?”

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,” Hébert wrote.

“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,” he argued.

“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.”

“Where is the transparency?”

CATO, meanwhile, is “perplexed” by why it has not seen consultation data from TICO’s consumer survey.

“Where is the transparency?” Hébert asked. “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.”

Therefore: CATO, in partnership with ACTA, “cannot support a proposal that ignore the current state of the Ontario travel industry and fails to modernize an outdated regulatory system,” Hébert wrote.

At a press conference last month, Smart said feedback about TICO's proposal will be compiled into a document and shared with TICO’s board of directors and then the ministry, which he estimates will take place before the end of the year. 

“We’re committed to sharing the good, the bad and the ugly – hopefully more good than bad,” said Smart. 

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