More than a quarter of a million people used a debit card to pay for Monarch flights and have no legal right to a refund, it emerged last night.
Customers who make a purchase of over £100 on credit card are legally entitled to their money back under Section 75 of the Consumer Credit Act.
But anyone who paid for flights with a debit card do not enjoy this protection.
They are covered by weaker ‘chargeback’ rules, a voluntary scheme to which card providers and banks sign up.
More than a quarter of a million people used a debit card to pay for Monarch flights and have no legal right to a refund, it emerged last night
Under this scheme, the customer’s bank will try to recoup their money from Monarch’s, which are not legally obliged to pay up.
This means the customer has no guarantee they will ever get their money back.
Last night Monarch’s administrators KPMG revealed that between 35 per cent and 40 per cent of 300,000 future bookings – comprising around three quarters of a million passengers – were made with a debit card.
According to the firm as few as 10 per cent of these customers will be covered by the ATOL scheme – the travel industry safety net that ensures customers who bought a package holiday are refunded in full if an airline or travel company goes bust.
This means that almost 110,000 bookings – comprising around 270,000 passengers – are covered by the weaker chargeback scheme.
Until fairly recently Monarch actively encouraged its customers to book their flights with a debit card, because credit card bookings incurred a 3 per cent – or £5 – whichever was higher.
It only ditched this fee in December last year following an EU crackdown on rip off charges.
Desperate Monarch customers have been bombarding their banks with claims since the airline collapsed at 4am on Monday morning amid fears they will be left hundreds – or even thousands – of pounds out of pocket.
They have been instructed to fill in claims forms, which require details of the flight including the number of passengers, as well as payment details.
Banking sources last night insisted that it is very likely that customers who paid with debit cards will get their money back through the charge back scheme.
They cited the example of the collapse of online travel agent lowcostholidays last summer, where many of the 140,000 customers affected made successful charge back claims.
Last night, Monarch’s administrators KPMG revealed that between 35% and 40% of 300,000 future bookings were made with a debit card. Above, stranded passengers queue to check-in for a ‘rescue’ flight by the Canadian Air Transat airlines at Gran Canaria airport after Monarch Airlines announced their cessation of operations
But customer face an anxious wait, with some told they will not get their money for six weeks even if they are successful.
Thousands of households who snapped up cheap Monarch flights on credit cards just before it collapsed will also find themselves in this uncertain situation.
The airline bombarded customers with text messages and emails advertising ‘thousands of winter sun seats’ for as little as £32 to destinations including Alicante, Malaga and Majorca.
One promotion – seen by The Daily Mail – was sent to thousands via a text message and email on Friday – when it was on the brink of collapse.
It stated: ‘Hooray for payday! Find the feeling with 1000s of seats at £30 to Spain and Portugal.’
Similar emails and text messages were sent to those on Monarch’s customer mailing list in the preceding weeks as the airline fought for survival.
Those who used credit cards to pay for flights worth less than £100 will also not be legally entitled to a refund under Section 75 of the Consumer Credit Act.
Another loophole in the law means that those who bought Monarch flights through third party travel agents or tour operators are not be protected by the Consumer Credit Act.
James Daley, founder of consumer website Fairer Finance said: ‘By Friday the writing was on the wall that Monarch was unlikely to make it through the weekend – so it was particularly disingenuous of them to try to encourage customers to pay for something they had little hope of ever receiving – and little chance of reclaiming their money.
‘I imagine these people will feel like they were tricked.’
He added: ‘This all goes to show the importance of paying for travel on your credit card.’
Many travel insurance policies provide no cover if an airline or travel company goes bust.
More than 30 per cent of the 110,000 Monarch passengers who were abroad when the airline went bust were expected to have returned to the UK by last night in the country’s biggest peacetime repatriation.
The Civil Aviation Authority (CAA) arranged 119 flights to bring back more than 23,000 people in the first two days of the operation.
All remaining customers are expected to have returned by October 15, at no extra cost.
A UK Finance spokesman said: ‘Paying through a debit or credit card provides an additional layer of protection for customers.
‘Chargeback is a well-established process to ensure cardholders don’t lose out when they have not received the service that they paid for. Customers should speak to their bank in the first instance and every claim will be assessed fairly.’
A Department for Transport spokesman said: ‘We know that news of Monarch’s failure will be distressing to those who have holidays planned.
‘The CAA is providing them with advice and assistance to reclaim their money where possible.
‘Monarch passengers with ATOL protection will be entitled to a full refund on any future bookings, and we advise those without to speak to their card providers, insurers or the company they booked their holiday with, as they may be entitled to a refund or replacement.’