Airline Collapse: How Issuers Can Control the Chargeback Turbulence


An airline collapse can create panic for consumers and cause havoc in the banking industry, especially within the chargeback operation. When travel companies fall apart, it’s typically due to a combination of falling revenue and rising costs.

For example, when the travel company XL Leisure Group collapsed in 2008, they left 85,000 people stranded abroad and a further 200,000 people with flights booked. A huge effort went into getting all of the passengers who were protected by the UK Financial Protection Scheme home, but the banks were inundated with claims.

Staff working in the banks were under extreme pressure. They were overwhelmed because they knew these claims needed to be done within the timeframe set by the schemes. Most importantly, they needed to be correct otherwise, they would risk the bank suffering financial loss, or even lasting damage to the bank’s reputation.

It wasn’t just the staff that were under pressure, it affected the operational managers too. They didn’t just have the responsibility of making sure operations ran smoothly, they also needed to make sure their staff were coping with the increased workloads. They needed to plan in order to succeed!

Problems for a Chargeback Operation

History shows us there will always be companies that collapse...we can guarantee it will happen again! The key is to be prepared to absorb the surge in activity afterwards.

Here are just some of the problems the banks must prepare for along with tips on how to deal with them:

Spike in Call Centre Calls

With so many people impacted, a huge spike in calls to customer service should be expected.

Top Tip: Sourcing extra man-hours can ensure cardholders are dealt with as quickly as possible. Another useful way to handle these calls is to use an agile telephone system, especially the pre-recorded facility. This lets cardholders know alternative ways to report a claim instead of waiting on the phone.

Long Waiting Times

Nobody likes waiting in a queue. Agitation sets in and cardholders will be angry and frustrated by they time get through to an operator.

Top Tip: Make sure the call operator is given the time to listen to the cardholder carefully and show empathy. Failure to allow this will risk giving incorrect advice.

Friendly Fraud

Consumer behaviour has changed a lot over the years, and the information published on the internet has played a big part in this. Some consumers are led to believe that reporting a transaction as unauthorised is actually the quickest and easiest way to get a refund. This is wrong, of course.

Top Tip: Employing skilled agents to ask the right questions when the cardholder calls can actually prevent friendly fraud, so make the manpower available to find out what really happened!

Intentional Fraud “Double Dipping”

There will be people who try to “double dip;” that is to say, get a refund from their bank as well as the insurance scheme.

Top Tip: Don’t just take the cardholders’ word that they have contacted the insurance company and were refused a refund. Get proof that all claim are rejected so there is something substantial to support the claim

Variable Chargeback Timeframes

Be aware the schemes may have variable timeframes depending on the circumstances. If banks do not have a contingency in place to process these increased disputes, they will lose the dispute and have to swallow the cost.

Top Tip: This can be prevented by ensuring there are enough staff available to process these chargebacks within the correct timeframes.

Issuer Checklist For Making a Chargeback Claim

The card schemes are aware of the financial worry consumers have when an airline fails. They, too, want to ensure cardholders are being treated fairly and are reimbursed for a service not fully provided.

The schemes will allow a chargeback to be initiated if certain requirements can be met. Here is a checklist to help determine if this is the case:

Check if Protected by an Insurance Scheme

The first thing to do is find out out if the travel company was registered with either the UK’s financial protection schemes ABTA, ATOL, or if they had flight cancellation insurance coverage.

This can be checked by either asking the cardholder directly, checking paperwork such as certificates, or checking the insurance schemes’ (ABTA & ATOL) websites. Keep in mind that some travel insurances will include a clause in the terms and conditions which excludes airline failures. Be sure to tell cardholders to check these thoroughly.

Find Out If a Refund Has Been Offered

Ask the cardholder if they have contacted either ABTA, ATOL, or the flight cancellation insurance company to check if they will get a refund.

If a cardholder is protected by ABTA or ATOL, there is a high possibility they will be refunded. After all, this is why the ATOL protection scheme exists.

However, some may be told to contact their bank to get a refund because they paid with a card. This could be because there’s not enough money in the pot to refund everyone involved, as they prioritise distribution by refunding consumers who paid cash. Remember, as mentioned earlier, make sure you get proof the case was rejected.

Process the Chargeback

If ATOL, ABTA, or the travel insurance company have told the cardholder to contact their bank, or the company wasn’t bonded with the UK financial protection scheme, the bank can initiate a chargeback, assuming other requirements are met.

If No Chargeback Is Available

If the chargeback requirements can’t be met, and the cardholder used a credit card, they may be legally protected under Section 75 of the Consumer Credit Act 1974. This law applies if a consumer uses a credit card to purchase their service, and the amount exceeds £100 but is less than £30,000. There are many factors to consider and each case needs to be reviewed individually. For more details, read this useful article: Section 75 of the Consumer Credit Act

If the cardholder used a debit card to pay for the service, Section 75 would not apply as banks are not legally liable. If the cardholder chooses to pursue the case, they will need to seek advice from their local trading standards or citizens advice bureau for a resolution.

Are You Prepared for Another Airline Collapse?

How a bank handles the increased disputes will have an impact on how cardholders perceive and trust the company. This will be a moment of truth for the organisation. Be prepared by sourcing extra man-hours to reduce call volumes, reduce waiting time and process the claims.

If you’d like more information on how The Chargeback Company can help you put the building blocks in place to ensure you provide a good service, contact us today.

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