The travel trade fears that the collapse last month of the unbonded French self-catering specialist, SFV Holidays, leaving 600 people without a holiday or a refund, could be the first in a string of failures.
At the beginning of the year the Government introduced a new law enforcing an EC Directive on Package Travel under which anyone who buys a travel package is guaranteed a refund or free repatriation if the operator goes bust.
Ratification of the directive theoretically supported the concept of universal protection for travellers in the wake of last summer's collapse of the unbonded coach company, Land Travel of Bath.
But the Department of Trade and Industry failed to provide a way of enforcing the legislation. Trading standards officers who were handed the job of policing it said they lacked the manpower and resources to do so.
The main travel trade associations, including Abta (Association of British Travel Agents) and Aito (Association of Independent Tour Operators), said the DTI plan was 'botched'. Letters from Michael Heseltine, President of the Board of Trade, which have come to light in the wake of the SFV failure, have renewed the controversy.
Shortly before SFV collapsed, its director, John Cullom, asked his MP, John Patten, whether the company needed to be bonded. Contrary to previous direction from his department, Mr Heseltine wrote to Mr Patten that SFV was a borderline case.
The regulations define a package as being made up of two of three components at an inclusive price: transport; accommodation; and 'other tourist services'. SFV's brochure clearly offered ferry-inclusive packages, which would require it to be bonded, so Mr Heseltine's action is being interpreted as an effort to reduce the number of companies who fall under the legislation.
Up to 30,000 UK travel companies should be offering financial protection under the EC Directive. However, Abta and Aito estimate that more than 15,000 of them have not bothered to provide financial protection.
Abta, Aito, the Bus and Coach Council and the Civil Aviation Authority, which require bonding, account for about 8,000 companies. The rest are supposed to organise insurance or special bank accounts for clients' money to trade legally.
The Independent on Sunday phoned a selection of companies advertising prominently in national newspapers. Eight out of 10 had no protection.
Patricia Kenny of Italien Tours said that she had tried to make the necessary arrangements with her bank 'but they don't know anything about it'. 'One wants to do the right thing. But in fact it's only a very small number who won't book with us when they find out we aren't bonded,' she said.
Aito's chairman, Noel Josephides, said: 'I find it alarming that the Government can allow already flawed legislation to be cracked wide open so soon after its implementation. Consumers' money is seriously at risk.'
A spokeswoman for the DTI said: 'This is the responsibility of the trading standards officers. We have nothing more to say.'