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Travel agent takes hit for fraudulent credit card booking — is that fair?

April 30, 2010

Gay Swope owns a “mom-and-pop” travel agency called Travel World International in Lorain, Ohio. It’s the kind of shop a travel advocate like me might refer you to for the kind of personalized service you won’t find online.

US Airways likes Swope’s service, too. So much so that it decided to offload some bad debt on to her small business.


Here’s a fascinating behind-the-scenes look at what happens when a ticket booking goes wrong, which will offer some insights into the risks your travel agent takes in doing business with an airline.

Last August, a client called to book an airline ticket for his daughter and her son. He stated he lived here in Lorain, while she lived in California. This was an emergency, his daughter needed to travel that same day to Florida due to the death of a friend. The client gave me his credit card information, home address and phone number. I issued the tickets on US Airlines and sent him the receipt.

In November, US Airways issued us a debit memo for the two tickets totaling $1,528. They explained the owner of that credit card disputed the charges. During our investigation of this matter, we discovered that the client that called to purchase the tickets was not the owner of that credit card. We also discovered that those two airline tickets were never used. The passengers were a no-show. Since then we have not been able to find the client that called to purchase the tickets, his phone number does not work and the address he gave if not valid here in our city.

Debit memos are issued by airlines when travel agents owe them money. In Swope’s case, US Airways wanted her to pay for the no-show passenger.

Here are my questions:

Why are we responsible for the $1,528?

If we took the credit card number over the phone, and it was a valid credit card, what more could we do to assure the credit card belonged to the caller?

All of the airlines allow clients to purchase tickets over the phone directly through them, how do they assure the caller is the owner of the credit card being used?

Since the travelers never used the tickets, no one is really out any money. Shouldn’t US Airways void this debit memo in this instance?

The answers are: You shouldn’t be, nothing, they can’t, and yes — I believe US Airways should void the memo.

Swope adds,

Those of us who work in this industry love it, but it is a struggle to stay in business in these tough times. The airlines give nothing back to the travel agencies even though we support them by selling their product. Do you have any ideas on how I can get US Airways to understand our situation and change their minds regarding this debit memo?

I contacted US Airways on her behalf. Here’s what it had to say in a response to Swope:

Thank you for your patience while I had my team look into this. Although there isn’t specific verbiage on our website, regarding the alleged fraudulent booking activity for this specific situation, our website does refer travel agents to ARC and ARC guidelines.

As an ARC accredited agency, travel agents agree to all of the booking practices and procedures as stipulated by ARC. In the ARC handbook, it lists ways to prevent fraudulent activity. Additionally, it notes, for credit card sales, specific steps that must be followed or the carrier can invoice the sale back to the travel agent.

From the email below, it would appear that not all of those guidelines, as determined by ARC, may have been followed. (Obtaining credit card info over the phone and getting an approval code does not validate that purchase as the card could be stolen or being used without the cardholder’s authorization.)

I understand the frustration of your situation; you do offer the airline a lot of business and work very hard. While I’m not able to offer you any different resolution than you’ve found previously, hopefully the more detailed explanation that our rules are based on ARC will help you.

Thanks for your continued business.

At least US Airways offered Swope a personal response. But I still don’t understand how she might have verified the credit card information, beyond what she did. It’s an expensive lesson for her to learn.

Swope’s case is likely to be referred to a collection agency.

Next time you visit your travel agent, take a moment to appreciate the risks they take when they do business with an airline.

Christopher Elliott is the author of Scammed: How to Save Your Money and Find Better Service in a World of Schemes, Swindles, and Shady Deals. Critics have called it “eye-opening” and “inspiring” — it’ll “grab your attention and won’t let go.” Order your copy now on Amazon, Barnes & Noble or iTunes.

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41 comments

  • George Ellenburg

    Every merchant that takes credit cards has to deal with these risks.

    If a merchant sells a $1000 TV to a customer who pays with a credit card, and the card turns out to be fake or invalid, the merchant risks not only losing the $1000 (+ $35 charge back from the card processing company), but also the wholesale costs for the TV as well.

    (I’m not saying I agree with these practices by the way.)

    US Air – if it wanted to do the right thing here – should split the difference with the travel agent and void/ refund at least one of the debit memos.

  • Alac Marshall

    Chris, I definitely sympathize with the travel agent. However, travel agents have been on the hook for these types of fraudulent charges for quite some time. There are various steps that could have been taken by the travel agent to prevent this from happening as well. But being from Ohio myself, we are a trustworthy bunch. We trust what people say and take them at their word, so I can understand why the travel agent trusted the customer and did not take the proper verification steps.
    She most likely will be sent to a collection agency and if she doesn’t pay the debit memo, US Airways will likely turn off her ability to issue their tickets. No great loss as US Airways doesn’t pay travel agents a cent to issue their tickets. She probably charges a small service charge of maybe $15 or $20 and is just getting by. Imagine how many tickets she must issue to pay for this debit memo?
    I could write a book about how many times and in so many different ways the consumer (or supplier) has duped my company. The latest instance really wins the ultimate prize for cunning & duplicity. I must say though, 99.99% of customers are actually fair and honest. It is only 0.01% that create chaos and in turn the higher prices and surly service we all face when we travel.

  • SirWired

    So, what ARE the “ARC” guidelines?

  • John

    Chris … There are services that a business can use for phone charges to verify the validity of the card. The system we use has the ability to verify billing address and the security code. All are key security features built into the card but not “required” for charging. If they don’t match, it will alert you (our credit card processor also charges us less when we use them).

    Another very simple practice, in this case ,would have been to ask the gentlemen to come down to the office to sign the card. That way you can verify the signature matches the card and see an ID.

    Anytime I see these “I’m in a rush. You need to do something right away.” I get suspicious. The whole scenario sounds like a scam when you write it.

    Having said that … Your article doesn’t make it clear on who charged the card? US Air or the TA? If it was US Air and they don’t have the fraud protections in place, they share some of the responsibilty too. It shouldn’t be completely on the TA.

  • Shelly

    US Air is correct about the ARC guidelines.

    As an ARC accredited agency, I have agreed to obtain an imprint of the credit card, have the client sign the imprint, verify their signature, and then verify the CVV and mailing address through our SABRE ticketing system.

    Yes, for every.single.credit.card. It’s cumbersome, but I haven’t had a debit memo yet. I’m a small agency owner and I get these emergency calls every week.

  • John

    Chris … I guess the other question I have is who should have to pay for the fraud? The TA who interacted with the client and sold a risky booking or the airline who sold a ticket through a “trusted” source.

    Unfortunately its the TA that took the risk selling a “risky” ticket and they who have to pay the price.

  • http://travelinggiraffe.blogspot.com Crissy

    George, while I agree this is part of the reality of being a merchant. the difference is that in this case the ticket wasn’t actually used. In your example that would be the equivalent of the person not getting the TV, since these customers didn’t actually fly the flight.

    As for if they flew the flight, then I would look at it a little differently, though I also don’t understand what the travel agent could have done differently. I think US Airways could have done better then that given the whole circumstances.

  • Carver

    I sympathize with the OP, but her position isn’t nearly as clear as Chris paints it. Credit card companies have well established guidelines for determining whether a merchant is liable for a fraudulent credit card purchase. One of these rules is that a physical credit card must be swiped. If you don’t swipte the card, the you run the risk of a chargeback if the owner disputes making the charge.

    Contrary to George’s statement, if a merchant gets duped by a fraudulent credit card, but he/she followed the rules in the merchant contract, the mercant is NOT liable for the charges.

    United has a position as well though. It sold two seats. That means there are two less seats in inventory for sale. If United had to turn down someone else who wanted to buy the seats because of this transaction, then United would indeed be out $1500 dollars

  • Phil

    I can sympathize with the travel agency. If I know my client who is calling I will take a credit card over the phone, otherwise the client must come in and show the credit card used, and identification that he/she is in fact the owner of the cc. It is not worth the headache and financial responsibility not to do this.

  • Mike

    While I feel sorry for a business in my local area being duped, it would be very easy to have that person come down to the agency to sign the card and swipe it at the terminal. Check ID and do everything else that the credit card company requires you to do in order to protect yourself.

    Also, if I were these agents, I would be asking US Air for a flight manifest in order to see if there were actually two empty seats on this plane because of her no-shows, or if the plane had been oversold and it was still a full flight. If the flight was full then I would think that the agency shouldn’t have to pay a dime. If there were plenty of empty seats, then unfortunately I think the agency is on the hook fo the charges.

  • Justin

    @ Carver,

    While I agree on the last part of your statement, it is not entirely true. If the plane was full, and there were no shows, the airline has a right to sell the tickets to someone else. Then, should the individuals arrive, they would just be booked on a later flight.

    Justin

  • Frank

    Since the tickets were not used, why wasn’t this the same as a lost ticket?

  • The Good Doctor

    It’s nice to know that in Ohio, a stranger who calls with no verifiable phone number or verifiable address can become a “client” just like that! While I sympathize with the agent, this is a reminder that we must be more cautious when dealing with people over the phone, especially when we have no preexisting relationship with them.

    This should serve as a lesson to “trust but verify.” This might mean a lost commission or two, but that pales when compared to a $1528 debit. The next time a transaction smells fishy (e.g., last minute emergencies), tell the caller to contact the airline directly and let the airline assume the risk.

  • Arizona Road Warrior

    @ Mike – “Also, if I were these agents, I would be asking US Air for a flight manifest in order to see if there were actually two empty seats on this plane because of her no-shows, or if the plane had been oversold and it was still a full flight. If the flight was full then I would think that the agency shouldn’t have to pay a dime. If there were plenty of empty seats, then unfortunately I think the agency is on the hook fo the charges.”
    - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - -
    I agreed.

    I can feel for the travel agency but to do business with a new customer over the telephone is a risk. If it was an existing customer, that is a different story.

  • sandi

    I had this happen to me several years ago and was told that if I had an imprint of the credit card and the client had signed the ucc slip then I would have been covered.
    Also people who do this know travel agencies run these thru the computer and normally do not verify the address against the card. A quick call to the credit card company to verify name and address would stop this

  • http://waynedayton.tripod.com Wayne Dayton

    For an unknown customer, not referred by an existing client, on a “rush” order….I would have verified the fare first in Sabre…then booked the flights as requested via usairways.com — letting US accept ALL the responsibility…
    IF it was a good card, I would get my service fee via my merchant arrangement; if it was a bad card, I would only lose the chargeback on said service fee and let US, and any other airline so enamored of their web booking capabilities as a way to push out the TAs, to live with the consequences of their short-sightedness.

  • http://www.all-about-guatemala.com/bc Benjamin Barnett

    I’m having a hard time understanding what benefit the person using the credit card is getting out of this. They didn’t get the money, did they? Does someone have a vendetta against this particular travel agent?

  • http://www.thedisneyblog.com John Frost

    credit card companies could solve this problem by moving the CVV# from the back of the card to one that’s generated algorithmically (it could be sent via SMS to a pre-registered cell phone). Obviously not useful for small purchases, but anything of $300 or so would work. The vendor could independently verify that number is the correct one as they do now, only a thief would have to have both the credit card number and it’s owner’s cell phone to commit fraud.

  • Iris Stewart

    I never take a cc over the phone unless I know the client. in this case, I would hav asked the client to send me a fax of both sides of the cc, alone with a copy of a drivers license and a note giving permission to use this card. that might sound like overkill, but it stops a thief. It has happened to me, so I know the feeling. Never again

  • Chris

    I work for Travel Agency in Canada that is a part of the CAA/AAA. We only issue tickets (for a fee) for our members in these type of situations. We found the risk is too great to do business in this manner with someone who does not have a pre-existing relationship with us. If they insist on booking with us, we refer them to the website, which is powered by Expedia and uses their technology to verify payments are done by authorized card holders only.

  • Carver

    @Justin

    I think the scenario would be more like this. The TA books the last two seats for the criminals. Subsquently, someone wants to buy a ticket on that flight. They are told that they cannot get a confirmed seat because the flight is at capacity so rather than go later, they buy a ticket with another airline.

  • Elaine Carey

    I too have been the victim of a cc scam very similar to this one year before last. The customer, because he didn’t make it to ‘my client’ status, called telling me his 2 daughters who are in different schools (in different states), needed to fly the next day to Las Vegas to go see their best friend who just gave birth to a premie that wasn’t sure to live long. After talking to this fella, said he was from the small town right up the road from me, even knew answers to some of the questions I asked (because I was trying to be cautious). He answered all of them correctly and I even tried to trip him up!
    He gave me his card and all the other info needed after I searched for the flights needed to get the girls arrival times in sync. The hairs were standing, but I thought I covered myself enough! I found out in a few days when the info packet I’d mailed to him with hard copies (he asked me to fax both itineraries to a number in Houston, which turned out to be coming from a courthouse!?), was returned as undeliverable! I did some research and found out the address wasn’t valid. There was no answer to the number that had worked just days before, and I began to get mad! Called our main office (I’m an Independant Contractor), and started asking questions.

    Well it was a scam, one of the girls used part of her ticket but she’d changed it to another city. I called the airline and told them what happened, that the passenger was flying on a fraudulent ticket. They cancelled the rest of the ticket! I couldn’t believe it. This was Southwest by the way. The other airline I used, Delta, basically said, oh well. I had to shell out $800 to one airline, but didn’t have to pay the other as I booked it on their website. Yay for Southwest. If more agents were proactive in this fight, we might stop more of the scammers. We get hit with them all the time.

    I learned a valuable lesson here and everyone I’ve booked since then has to either come to see me in person with cc in hand, or fax me a copy of both sides of the cc with a photo ID and signature giving me permission. I still check through my Sabre system just to CYA so I don’t ever have to write one of those checks again! There are ways to check. Oh yeah, I also called the cc company and warned them of the fraud!

  • Nigel

    I am an insurance agent rather than a travel agent and we also take credit card payments. Our contract with the processing company states the custome must be in the office and sign. If the card won’t “swipe” because of problems reading the magnetic information we are required to take a manual imprint to show the card was in the office even if we input the card number etc manually.
    It is possible for us to have a contract which allows telephone sales BUT the discount rate we pay is higher on all transactions; it is also possible for us to get a contract for sales over the Internet but I understand the discount rate is even higher still – so even less money in our account for all transactions.
    In view of the above we stay away from telephone sales.
    The other question I would have is why couldn’t the customer come ito the travel agency or one nearer to his location – it’s not like he was a regular customer.

  • Chris in NC

    Everyone, I think there’s 2 independent issues at stake here…

    1) Should the travel agent (Gay Swope) been more diligent before processing the ticket… ABSOLUTELY.

    However, the other issue that Chris (Elliott) brought up is being overshadowed. The tickets were NEVER used and I assume that US Airways has voided the tickets, so they cannot be used on another itinerary. Did I read that right? or am I missing something. If thats the case, then I don’t agree that Gay Swope should be hit with a debit memo. One could argue that the flight was overbooked, and as a result the flights took off with empty seats. Fine, then bill the agent for a $100 change fee, but to demand $1500 seems unreasonable.

    So, am I off base or not?

  • Chris in NC

    @ Carver and Justin

    Yes, US Airways may argue that the flight was full and that they were denied an opportunity to sell 2 seats at a higher “walk-up” fare. I don’t buy that argument. Lets say that I missed the flight or showed up late. US Airways would allow me to continue to use the tickets, provided that I pay a “change fee” (is it still $100 or is it higher now?) In this scenario, the flight still took off without the original revenue passenger.

    One further comment regarding Ms Swope. She either hasn’t been in business very long or has been VERY fortunate in the past. The scenario which she describes has so many red flags, you think it was fire season in California. At worst, this should be a lesson learned. A few simple steps, such as taking a phone number and calling the person back would have allowed her to discover that the number didn’t work. Since the client supposedly lived in Lorain, she could have demanded that he come in. Another trick I use in my business, is to google the name and address as well as the phone number. While none of this would satisfy ARC, it may prevent a future problem.

  • Win

    I had a very similar occurance last year. A gentleman called. Two one tickets for his daughter & grandson. The man used a clients name I thought was familiar to me. The tickets were issued & subsequently several months later received a charge back debit memo from US Airways for both tickets. Neither ticket were ever used. I spoke with US Airways so many times they refused to accept my calls. Even though one US Airways representitive agreed with my logic that the tickets were never used, either recind the debit memo or allow the agency a waiver to use those tickets toward another client. I was strongly & rudely told “no” by more than one supervisor. The debit memo was turned over to a collection agency which could not negotiate a lower fee. I was forced to pay the entire amount. I now do not take credit cards over the phone for anyone other than proven long standing clients.

  • http://www.travelwithprofessionals.com Jeff Victor

    @SirWired – ARC is the Airline Reporting Corporation, which is a company owned by the airlines and provides Settlement Services and accreditation for airlines, corporate travel departments, railroads and travel agencies. Among other things, it allows Travel Agencies to issue tickets on most major air and rail carriers across the globe. The guidelines you are asking about outline the process for issuing those tickets.

  • Ernest

    @John Frost
    credit card companies could solve this problem by moving the CVV# from the back of the card to one that’s generated algorithmically (it could be sent via SMS to a pre-registered cell phone).

    As strange as it may be to you, there are quite a few of us older travelers that do NOT have (or want) a cell phone. If it was not for wanting the internet and needing a phone for 911 type emergencies, I would get rid of my land line. I travel all over the world and am gone 4 months a year. I don’t need a cell phone, I don’t want one one and I certainly don’t miss having one.

    Credit card acceptors have a way of verifying the card. I have given my security code and accidentally switched the numbers. The firm (Lufthansa) accepting the card knew instantly it was not correct and asked me to reverify it. So there is a system out there to check on credit cards.

    I do not know if it is practical or affordable for small business owners but it is there.

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  • Bill

    Since the tickets were not used, it is regrettable that US Airways didn’t cut them some slack. However, taking an “emergency” order over the phone like that is not a good business practice at all.

    There are alway urgent things. That’s when the customer has to drop everything and do things right…buy the tickets online or in person, etc.

    The travel agency screwed up. Expensive lesson. However, phone sales have been discouraged for YEARS.

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  • http://www.MexicoBeachExperts.com Catherine Banks

    The other tragedy that hasn’t been mentioned is that it doesn’t matter if the agency owner decides to pay the debit memo or not. ARC has the authority to come in on behalf of the airline and draft her account for the amount of the debit memo. The airlines and ARC have complete control and the agency owner has none. That’s why we stopped selling ARC products several years ago. The risk just isn’t worth it.

  • andy

    I am sorry to hear this kind of story, but within the last several years the airlines have gotten rather creative with issuing debit memo’s to travel agencies.

    In this particular case, per the ARC rules the Travel Agent must obtain a copy…and or imprint of the credit card with a signed authorization to process the charge. Many Travel Agencies go one step further and require a 2nd form of identification. There have been cases when disputing a debit memo that even with that amount of documentation, the Debit memo may still be processed, against the Agency

    The difference between the Travel Agency and the Airline, the Airline will still generally get a imprint of the card when the passenger swipes the credit card at the airport. Then again, even the Airline Industry get hit with fraudulent credit cards, and only they know what their losses are.

    It’s a hard lesson to learn for the Travel Agency, but a lesson learned.

    With the additional sophistication of the airline reservations systems, the flood of debit memos the Travel Agencies are receiving is astounding.
    Hence the Travel Agency must…be very diligent as to how they process their airline tickets.

    The Travel Agent is for the 95% the advocate for the Consumer, but they also need to protect themselves.

  • Carver

    @John Frost

    I don’t understand. Are you suggesting that for each credit card I would have to memorize the cv# or keep it stored in my smart phone? That would be a bad idea as it would only give virus writer even more incentive to write viruses for cell phones.

    The reality is that its an infinitesimal number of credit card transactions which are fraudulent. The best defense against credit card fraud is good practices by both merchants and cardholders.

    And hopefully this idiotic suggestion of not signing your card will eventually die. If you don’t sign you card, the thief will simply photoshop a fake out of town driver’s license with your name and his photo and signature and no merchant will ever be the wiser. That’s much easier than trying to forge someone’s signature.

  • y_p_w

    I had a couple of airline tickets charged to the first credit card I ever had. A couple of charges for Southwest Airlines showed up on my statement. I disputed the charges and requested the charge slips from my credit card company, and I got back two charge slips from a travel agent. I found out that the fraudulent customer booked over the phone with my credit card number, picked up the tickets in person, and was never asked to show the card or sign anything. I think my number might have been lifted by someone, but when it was used fraudulently, my name wasn’t even anywhere on the charge slips. It was pretty sloppy work by the travel agent, but I was really surprised since the credit card processor didn’t even spot that the name given for the card didn’t match.

    For all the suggestions about the tickets possibly still being used for credit, wasn’t it established that they weren’t authorized for it now? At the very least I would think anyone trying to use them to exchange for another flight would be brought in for questioning as an accessory to credit card fraud. The airline isn’t going to honor the tickets anyways.

  • Ernest

    Bottom line, the TA screwed up and wants someone to fix their problem. Maybe the TA should have insurance to cover fraud. I hear there are a few (non)insurance companies in Florda that are experts at fraud.

    Fraud hurts everyone but it sounds like it could have been avoided in this case if the TA had only followed the rules. I find it difficult to feel sorry for them.

  • http://www.travelveda.com/ Travel Veda

    I could write a book about how many times and in so many different ways the consumer (or supplier) has duped my company.

  • Joe Farrell

    Now wait a minute. Last minute tickets are almost ALWAYS refundable – a $1528 ticket from somewhere in Calif to Florida is very likely booked in either B or Y class. Meaning, wait for it . . . . . . . its REFUNDABLE. Refund the ticket to USAir and BE DONE with it. More than a year has passed – so the ticket is no longer valid but that does not mean USAir is entitled to keep the money . . .

    Tell the OP to issue a refund.

  • Chandresh

    Its simple.

    US Airways takes the hit for what they were entitled to. The travel agent takes the hit for the commission. Thats how it works. I work with credit cards and online processing everyday. As a merchant we can’t do anything if the payment gateway says the card is valid. There is not much you can do. You may verify by calling but its not feasible to do so for every customer. Thats the nature of the business. US Airways is stupid and its not right. Unless the way it works is like this – US Airways sells the ticket to the travel agent and travel agent sells it to the customer. So travel agent is more like a reseller. In that case, US Airways has made the transaction with the travel agent and has the right to demand the money. The travel agent will have to absorb the loss.

  • http://www.cockam.com ajaynejr

    How does (how can) the customer lock in the fare and also his exit row seat selection between the time he telephones and the time he shows up at the TA’s door with the credit card to get an imprint of?

    For example can the TA claim the seat(s) at the time of the customer’s call and then make the payment when the customer shows up in person?

    Or does the TA have a time period after booking and paying over the phone that the transaction can be made first and then cancelled with no fees if the customer doesn’t show up with his credit card in timely fashion?

  • Bill

    Everyone needs to watch out for fraudsters. Their tricks change constantly. Work with your providers to make sure you aren’t liable. I know this is an old story but the travel agent got sucked in. No matter what the “story” is, the rules need to be followd. It isn’t US Airways’ fault.

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