Tour Operators Going Broke Send Clients Off to Nowhere : Consumers: Even established firms can fail. A California trust fund will protect some travelers, but otherwise, buyer beware.

This is the nightmare: On the day before your departure on a long-awaited vacation package tour, your tour operator shuts down, and all your prepaid money vanishes. Or maybe the operator collapses after your trip has begun and leaves you not only short a few thousand dollars, but stranded in a foreign land.

But unlike many nightmares, this happens in the real world with alarming regularity, and in the last two months it has happened even more often than usual. Since late September, RFD Travel Corp. of Mission, Kan.; Domenico Tours of Bayonne, N.J., and InterPacific Tours International of New York have all closed their doors with little notice, leaving travelers and other creditors with little or no information. Similarly, on Oct. 29, Regency Cruises suspended operation of its six ships and two weeks later filed for Chapter 11 bankruptcy protection in a New York federal court.

Fall has perennially been the cruelest season for tour operator failures. “It’s when they run out of cash flow” after the busy summer months, said Robert Whitley, president of the New York-based U.S. Tour Operators Assn. (USTOA). But this season, Whitley and other industry veterans agreed, has been the cruelest in years.

In RFD’s case, a spokesman for the Kentucky-based National Tour Assn. (NTA) said he was “fairly certain” that consumer losses would exceed the $100,000 limit of the firm’s agency-sponsored consumer-protection policy. In the meantime, Illinois-based Mayflower Tours has bought the failed company’s assets and opened a new division called RFD Tours.

In the case of InterPacific Tours International, one of this country’s biggest wholesalers of China tours, the firm had been in business for 18 years and enjoyed a good reputation; in fact, I used InterPacific myself on a trip to China in 1993.

Domenico Tours, one of the largest members of the National Tour Assn., had been in business 32 years when it announced its closure Oct. 19, citing “adverse economic conditions.” Chapter 11 bankruptcy proceedings involving the company began last month.

Those failures, USTOA’s Whitley said, offer a sobering warning about the tour business today: “Reputation and number of years in business are not a sign of financial stability at all in this industry.”

How, then, can travelers protect themselves against these disasters?

One recovery tool is a new state law, effective Jan. 1, 1996, that requires sellers of travel in California to register with state officials and establishes a trust fund (target amount: $1.6 million) to cover consumer losses when companies fail. Under the law, most tour operators will be required to show that they hold client deposits and prepayments in an account separate from their company’s day-to-day spending, or that they take other measures yielding comparable protection. The catch: Money from the trust fund will go only to consumers who used California-based companies, and many of the nation’s leading tour operators are based outside California.

Two other tools are relatively straightforward: Credit card companies such as Visa and American Express will refund your money if you use their card to prepay for a service that later is not rendered. (Make sure that a business has a decent track record, however, before giving up your card number.) Beyond that, some of the insurers that sell travel policies (which generally protect you in the event of your inability to make a trip) also sell operator-failure coverage. The best such policies will cover not just bankruptcies, but defaults generally.

Industry consumer-protection programs can offer reassurance too. The strongest such program is the USTOA’s $1-million consumer protection plan, which requires each of the association’s 43-member tour operators to set aside $1 million in assets for reimbursement to clients if the company fails. (Failures can, however, surpass $1 million. When California-based Olson Travelworld failed in 1992, the USTOA’s Whitley recalled, consumer claims reached $1.7 million.) For information on USTOA members and the group’s consumer protection plan, write the U.S. Tour Operators Assn. at 211 E. 51st St., Suite 12B, New York, NY 10022.

The National Tour Assn. in Lexington, Ky., which counts 619 member tour operators (most of them smaller and more focused on domestic travel than USTOA members), has a more modest plan. Under that program, the association will cover up to $100,000 in combined debts to consumers if one of its member companies enters bankruptcy. Since the program began in January, 1988, a spokesman said, the association has made 20 full payouts, and two $100,000 payouts in bankruptcies where the losses were greater than that. (Domenico and RFD were NTA members.) One drawback: In many business failures, legal bankruptcy isn’t established until weeks or months after the company’s doors close, delaying consumer repayments.

The American Society of Travel Agents (ASTA) has a program, too, but one that’s voluntary, and substantially less demanding. The 64 members of ASTA’s “TOP” tour operator program each are required to either participate in the USTOA or NTA programs or to maintain a separate account to hold deposits and prepayments, a provision similar to the requirements of the new California law. Like the NTA, ASTA requires participating tour operators to hold $1 million in liability insurance in the event of “errors and omissions” by the company.

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Reynolds travels anonymously at the newspaper’s expense, accepting no special discounts or subsidized trips. To reach him, write Travel Insider, Los Angeles Times, Times Mirror Square, Los Angeles 90053.