The scramble to avoid paying Freedom Direct Holidays customers is damaging public confidence in the industry and angering credit cards firms, it has been claimed.

TTG understands one credit card company is so furious customers are being directed to it that it has threatened to start regarding Abta members as more high-risk than non-members.

Alan Bowen, a legal expert at AGB Associates, blamed the mess on the successful court challenge two years ago by Abta against the CAA’s guidance on packages.

This was seen as giving retailers the green light to put together holiday components themselves without becoming an operator and sell them outside of the Atol regime.

A former head of legal at Abta, Bowen said the Freedom fallout would be felt most by Abta, who he claimed should be handling most of the claims.

Freedom’s Atol bond was for just £750,000 and with the CAA operating on the principle of a 10% multiple, that would account for £7.5 million of its business.

However, Freedom’s latest accounts put its annual turnover at £70 million, Bowen said.

“It’s going to come back and bite Abta. If the CAA is clear what Freedom was selling was not Atol packages, it appears to be agency business.”

Abta said it operated on the basis that it is the consumer protecter of last resort.

It said the Freedom collapse did not expose new holes in protection but did present issues “not because of the nature of its business but more to do with the scale”.

• Could CAA stance aid Travel Republic case? (14 May 2009)

• Comment: 'Freedom failure will be a watershed case' (14 May 2009)