Do Your Homework to Assure Trip Protection : Tours: With many travel operators experiencing financial trouble, protecting the public’s money has become a major issue. It pays to ask the right questions.

A retired doctor and his wife recently paid about $20,000 to a well-known tour operator for a 49-day trip to South America. They received their tickets and other documents for this long-awaited vacation, but took out no travel insurance.

On the second day of the trip, the tour escort informed the group that the hotels they were going to stay in had not been paid by the tour operator, which was experiencing financial difficulties.

What’s more, their return air tickets to the United States were no good. Bottom line: They would have to pay for all these land and air arrangements a second time, then try to get their money back from the tour operator.

The couple tried unsuccessfully to hook up with another company’s tour in South America. After two more days they flew home. By the time they got back to the United States, they had spent another $2,000. The original tour operator has yet to refund the money.

“This is an example of dealing with a company that didn’t put consumer funds in an escrow account, and which isn’t a member of a tour protection plan that covers insolvency as well as bankruptcy,” said Susan Tanzman-Kaplan, head of the Southern California chapter of the American Society of Travel Agents.

Isolated horror story? Hardly.

Protection of advance travel payments has become a crucial issue in recent years, what with numerous tour operators and airlines having ceased operations.

Since 1984, 14 airlines operating large aircraft have filed for bankruptcy. Travelers have lost thousands of dollars, been stranded abroad and been forced to make major changes in their travel plans.

Encino-based Hemphill Harris Travel, one of the country’s most prominent tour operators, is one such financially troubled operator that allegedly collected money from consumers for trips that were later canceled without notice or refunds.

The company, which is under investigation by the California Attorney General’s office and the U.S. Postal Service, now faces lawsuits, including a class-action suit.

How can travelers protect themselves?

For starters, ask how the money paid for your travels is being protected . . . if at all. And consider some form of travel insurance, especially if a good deal of money is involved. Even travel agents sometimes have difficulty selecting a reliable tour operator.

Consumers should ask the same questions that agents ask, such as: How long has the tour operator been in continuous operation and under the same management? If there has been a sale or merger, who are the new owners and do they have a travel background? Has your travel agent used this tour operator before? Is the tour company part of any trade association that offers refunds if a member goes belly up?

Startled by the failure of some major operators, the United States Tour Operators Assn. recently increased its bond for members from $100,000 to $250,000. Starting today, however, USTOA will have a $5-million bond to cover all of its 40 member companies.

This fund will be used to reimburse consumers using the services of a troubled member, who still must post an individual $250,000 bond.

“This new bond covers all consumer losses, and the tour operator doesn’t have to declare bankruptcy or insolvency for the plan to go into action, just failure to refund consumer deposits or payments within 120 days for cancellation or total non-performance of a tour,” said Ty Tanaka, USTOA chairman and president of San Diego-based Japan & Orient Tours.

“We believe this amount should be more than enough to cover any future contingency.”

Another trade protection system is the tour payment and protection plan offered by ASTA. This program calls for participating companies to post a $150,000 bond, an amount that has been widely criticized as too low in today’s marketplace.

Under this plan, consumer claims have to be processed through travel agencies that are ASTA members, and the plan is only activated if the tour operator actually files for bankruptcy--which it may elect not to do.

But the road to security doesn’t stop here.

Suppose you’re told, with great assurance, that your money is going into a special trust or escrow account. How much protection does this really give you?

Not much, really, as long as the travel outfit has access to these accounts.

, though the majority of companies are reputable.

Under California’s travel promoters law, anyone selling travel is required to furnish the tickets within two business days of full payment, or be bonded, or put consumer funds into a trust account.

Trust account money is supposed to be held until the suppliers have been paid; it is not to be used for other purposes, such as salaries, equipment or other overhead expenditures.

In practice, however, there isn’t any monitoring of these trust accounts, though the vast majority of companies are reputable. “It’s really on an honor system,” Tanzman-Kaplan said. “But consumers should realize that trust accounts are not secured.”

If the state discovers that a travel company’s trust account has been raided, the perpetrator can be prosecuted, according to Hershel Elkins, Los Angeles-based senior assistant attorney general for the state of California. The consumer, however, can still be out his money.

Other travel outfits use what they call escrow accounts.

“With an escrow account, the bank is usually in control of the account and obligated to disburse the funds in accordance with the escrow agreement,” Tanzman-Kaplan said. “However, what are the terms of the agreement?”

For example, can the money be removed before the trip is completed? Are the funds set aside for a specific time period and, if so, for how long? Is the money comingled with funds for any other purpose? Can the money be removed for any reason, or only in connection with your specific travel arrangements? Who can the money be released to?

How does the consumer find out what these escrow terms are?

“Ask,” Tanzman-Kaplan said. “If I were buying a tour package for $10,000 or so, I’d want to know if the operator could withdraw money prior to my leaving on my trip or completing it.”

Who the check is made out to is also a key. For example, rules on charter flights still call for charter operators to have escrow accounts for each flight; the operator has no access to the money until service is completed.

Tanzman-Kaplan also recommended making your check out to the bank-controlled escrow account, not the charter operator or the travel agent. “And make sure the escrow account number is on the check,” she added.

In the end, how a travel company labels these accounts can be misleading, according to Michael Grossman, president of Cruises of Distinction, a Montclair, N.J.-based cruise discount firm.

“Many accounts are nothing more than money market accounts,” Grossman said. “There’s nothing wrong with this, but consumers shouldn’t feel any special security in these cases. Regardless of what the agent or tour operator calls their account, if they have checkbook access to it it’s no more secure than any other account.”

Grossman said his firm tells consumers who ask that consumer funds are deposited in money market accounts. “We don’t say we have an escrow account because we don’t want to mislead people.”

In addition, Grossman pointed out that when companies say they are bonded, this is generally for the protection of suppliers, not consumers.