The Tour Goes On Even if the Operator Doesn’t : Tours: A form of insurance protection for travelers places funds in escrow until <i> after</i> trip is concluded.

The issue of protecting travelers who purchase package tours has surfaced in recent years after several major tour operators went out of business, in some cases leaving passengers stranded abroad and without refunds. When one prominent Southern California tour operator, Encino-based Hemphill-Harris Travel, ceased operations in 1989, as many as 200 tour passengers were left as far afield as Japan, India and Australia, while other tours were canceled without refunds. Estimates have put the overall financial loss to consumers at between $800,000 and $1.5 million.

The Travel Funds Protection Plan, developed last summer by the First of America Bank in Detroit, is a form of tour protection for travelers who purchase package tours. Last February, it was endorsed by the American Society of Travel Agents (ASTA).

Here’s how the plan works: Travelers make out their tour payments to an escrow account handled by the First of America Bank. The travel agent handling the booking then sends the payment to the tour operator involved, who records the sale and sends the money on to the bank. From then on, the First of America Bank is in complete charge of the consumer’s money. The idea is similar to the practice of charter operators who have been putting passenger payments for charter flights into an escrow accounts, as required by the Department of Transportation.

“We feel this program is revolutionary in the sense that it offers the consumer a 100% guarantee on a major part of his expenditures, should there be any problem,” said Andrea Rice, a spokeswoman for ASTA. “This is a true escrow fund. Unlike other so-called escrow programs where a tour operator has access to travelers’ funds, or deposits are commingled with an operating account, the Travel Funds Protection Plan requires that the escrow account be composed entirely of travelers’ money. None of the consumer’s money for land costs can be taken out by the tour operator until services are delivered.”

Specifically, it’s not until five business days after services have been delivered--after the tour is concluded--that the bank releases payment covering land-related costs of a tour, such as hotels and sightseeing, to the tour operator. As for the air portion of the packages, the plan calls for the bank to pay the airline in advance for any air tickets, using money from the total consumer payment. If the airline ceases operations before the bank remits payment to it, or the tour operator defaults, the traveler must file a refund claim no later than two days after the scheduled return date. The plan, however, doesn’t protect travelers if the airline ceases operations after it has received payment.

Currently, there are five tour operators participating in the Travel Funds Protection Plan--Prima Holidays of Los Angeles; Future Tours of Boca Raton, Fla.; Bahamas Vacations, based in Allentown, Pa.; Places to Go, Coral Springs, Fla., and Goway Travel, Toronto. “We have six more tour operators in the final stages of setting up their participation now,” Rice said. The bank’s fees for managing the escrow account are paid by the individual tour operators. The tour operator does get to keep the interest on the consumer’s money, which can help offset the cost of the bank’s service. Tour operators also must submit to an outside audit on at least an annual basis.

“This program is open to any tour operator,” Rice said. “We believe that the program will grow in popularity with tour operators since the 100% guarantee of safety for consumer funds for land costs can be a big help in marketing, and can help restore public confidence after a number of tour operator bankruptcies.”

Participating tour operators must, in turn, obtain the agreement of the hotels and sightseeing companies they use in their programs.

“We saw this plan as a way to give confidence to consumers, as well as travel agents, who have watched one tour operator after another close down, often with the loss of the planned travel and the money that was supposed to pay for that travel,” said Ron Greenspan, executive president of Future Tours, which offers packages in the Caribbean, Mexico and Latin America. “In no case does Future Tours receive any part of the consumer’s funds until after services have been rendered.”

Before entering the program, Future Tours secured the cooperation of such suppliers in its Caribbean tour programs as Sandals Resorts, Super Club Resorts, Merv Griffin’s Paradise Island Resorts, Bolongo Resorts in St. Thomas, and other properties in Belize and Costa Rica.

“Some hotels haven’t agreed, but if we do pre-pay for people on our tours, it’s with our own money,” Greenspan added. “The suppliers can verify that their money is being held by the bank.”

Travel agents can also verify that the money paid by their customers is being held by the bank.

Consumers seeking a refund would start the process by contacting the travel agent who handled the booking. The agent would then alert the bank, which should then issue the traveler a refund through their travel agent.

What the Travel Funds Protection Plan doesn’t protect consumers against are late cancellations or complaints about service. Purchasing tour cancellation/interruption insurance can still be a prudent move.

Meanwhile, ASTA is phasing out its own tour protection plan at the end of this year. The reason is that fund reserves to pay up to $250,000 in claims against each of the 26 tour operators in the program is considered too low to repay consumer losses in case of a major tour operator bankruptcy. Proposals to raise the $250,000 level to a more realistic amount were not accepted.

The 560-member National Tour Assn. has a consumer protection plan that will pay claims up to $100,000 per tour operator member in the case of bankruptcy causing the cancellation of packages throughout North America. By contrast, the U.S. Tour Operators Assn., which includes such prominent tour companies as Brendan Tours, Globus-Gateway and Japan & Orient Tours, has a healthier $5-million consumer protection program in place.

When purchasing a tour, one of the key questions to ask a travel agent is what happens to your money. Does the tour operator participate in a consumer-protection program offered or endorsed by the trade association? Does the money go into a separate escrow account that can’t be touched until the trip is over, or does the tour operator have access to this money at any time? If it’s the latter, think twice. There are many small tour operators who may not be able to afford the cost of participating in a true escrow fund, and need consumer funds for their operating costs. Such operators may not have enough credit with hotels and other suppliers, and thus must pay cash to suppliers.

It’s also worth asking how long the tour operator has been in business and under the same ownership and management, and whether the travel agency has sold tours by this company before. Keep in mind that even travel agents can have difficulty selecting a reliable tour operator, inasmuch as some well-regarded operators have recently ceased operations.

For that reason, it can be all the more important to find out who has control of your tour payments. As always, payment by credit card is generally a good idea since you can ask the credit card company to void any sale if a service isn’t rendered.