The Competition and Markets Authority has secured an agreement from OTA Love Holidays to pay back £18m in outstanding refunds for cancelled trips.
The deal will see 44,000 customers who are awaiting refunds for trips cancelled due to coronavirus get their money back by the end of next March.
The OTA could face court action if it fails to abide by the agreed timetable for outstanding refunds.
Sky News reported a total of £7 million has been returned to 20,000 customers to date, Love Holidays saying this had taken the total refunded to £205 million since March.
Budget airline Ryanair hailed the announcement on Twitter, describing Love Holidays as “one of the biggest culprits of delaying refunds to our customers”.
OTAs have blamed unprecedented demands on their call centres and airlines for holding on to customer cash for their problems in processing refunds.
The CMA has recently agreed a similar pay-back timetable with rival OTA lastminute.com and has also acted against Tui and Virgin Holidays.
By law consumers can expect to be refunded for cancelled flights within seven days and for package holidays within 14 days.
However, with many travel agencies and airlines facing ruinous levels of claims regulators have not imposed the rules and allowed firms to provide protected refund credit notes, although cash refunds must still be offered.
Andrea Coscelli, chief executive of the CMA, said: “Travel agents have a legal responsibility to make prompt refunds to customers whose holidays have been cancelled due to coronavirus.
“Our action today means that Love Holidays’ customers now have certainty over when they will receive their money back and they will receive this without undue delay.
“We are continuing to investigate package travel firms and where we find evidence that businesses are breaching consumer law, we will not hesitate to take enforcement action to protect consumers.”
A spokesperson for LoveHolidays responded: “We sincerely thank our customers for their continued patience, and apologise that it has taken much longer than normal to process their refunds.
“Whilst we’ve made significant progress, there is clearly more to do, especially on airline refunds, and we urge all parts of the tourism sector to work together to ensure that customers are refunded as quickly as possible.”
Rory Boland, Editor of Which? Travel, said: “Love Holidays has been one of the worst culprits when it comes to failing to refund customers for coronavirus cancellations.
“While it’s right that the regulator has stepped in, customers – who are legally due a refund within 14 days – will be angry that having already waited months the CMA is allowing the online travel agent to delay these refunds for several more months.
“Love Holidays is one of countless holiday operators that have let customers down on refunds this year, highlighting the need for widespread reforms across the travel industry.
“The government must look at measures to ensure there are better protections for holidaymakers’ money, while the Civil Aviation Authority – which has been unable to take meaningful action against airlines holding up the refund process by withholding money from holiday companies – must be given stronger powers.”