Online travel agent Lastminute.com has been threatened with court action by the competition watchdog for failing to pay out refunds to some customers.

The company vowed to make £7 million of payments by the end of January to 9,000 customers who had holidays cancelled due to the pandemic under a formal agreement with the Competition and Markets Authority (CMA).

But the watchdog said £1 million owed to 2,600 customers remains outstanding.

Unless the money is paid out within seven days, court action will follow, it said.

If lastminute.com does not comply with the law and pay people their outstanding refunds quickly, we will take the company to court

The CMA also found that the company failed to meet its ongoing commitment to repay all customers entitled to a refund within 14 days of their package holiday being cancelled on or after December 3.

Lastminute.com is also accused of telling some package holiday customers to go directly to their airline to get the cost of their flight back, in breach of package holiday rules.

To avoid court action, Lastminute.com must also ensure that customers who book their package holidays from now on will receive a full refund within 14 days, the watchdog said.

Andrea Coscelli, chief executive of the CMA, said: “It is wholly unacceptable that thousands of Lastminute.com customers are still waiting for full refunds for package holidays despite the commitments the company signed with us.

“We take breaches of commitments extremely seriously. If Lastminute.com does not comply with the law and pay people their outstanding refunds quickly, we will take the company to court.”

In a statement, Lastminute.com said that it had refunded more than £40 million to customers, but still has £1.3 million pending.

It also said that confusion over how Ryanair handles refunds had added to the troubles.

“We sincerely apologise to all customers still waiting for their package holiday refunds and we are making every effort to resolve any remaining delays customers are facing,” said managing director Andrea Bertoli.

He added: “Despite all our efforts and commitment, we did not meet the CMA undertaking’s deadline for this small proportion of customers because of the impact of the unforeseen third lockdown and Ryanair disrupting the refund process.”

The company said Ryanair had asked customers to directly come to it for refunds, even if the booking was made through a third party such as Lastminute.com.

However, Ryanair rejected what it called “false claims” by Lastminute.com.

A spokesperson said: “Ryanair welcomes the CMA ruling which exposes the unlawful actions carried out by Lastminute.com, who have been blocking refunds from thousands of customers for months.

“Customers would not be waiting to be reimbursed if Lastminute.com did not change customer contact and payment details at the time of booking, a practice by OTAs (online travel agencies) to prevent customer awareness of overcharging of up to +70% versus booking direct on Ryanair.com.

“We have done everything we can to assist OTA customers who have been disrupted by these anti-consumer practices and we call on the CMA to ensure Lastminute.com and other similar third-party travel websites provide correct customer contact and payment details at the time of booking.”

The CMA has previously written to more than 100 package holiday firms to remind them of their obligations to comply with consumer protection law.

The cost in total is over £1,000, which is lots of money for retirees. I’ve been assisting and trying to resolve the matter for them, but even I am struggling

Virgin Holidays, Tui UK, Sykes Cottages and Vacation Rentals have previously made refund commitments.

Last December the CMA said it was investigating whether airlines had breached consumer rights by failing to offer cash refunds for flights passengers could not take amid the pandemic.

The separate probe will look at situations where airlines continued to operate flights despite people being unable lawfully to travel for non-essential purposes.

It said that in some cases where flights were not cancelled, customers were told to rebook or offered a voucher rather than a refund.

One Lastminute.com customer, Grace Simms, said she had endured 10 months of waiting for a refund on a package trip to Oslo in Norway.

The trip had been planned for April but was cancelled the week before due to the pandemic.

Ms Simms, 28, from Reading in Berkshire, said she had received numerous automated messages from the company, but found it impossible to speak to a human being about getting the cash refund she was entitled to.

“With all the uncertainty we weren’t really keen on a credit note and because we booked a package holiday we knew were entitled to a full refund,” she said.

However, she said the company “seemed to have taken down all of their email addresses and phone numbers from online, so there wasn’t actually a way to be able to contact them”.

“I just couldn’t find anything at all. I thought, ‘this isn’t great’.”

Ms Simms said she then received another email in September alerting her to the fact that she could claim a cash refund, but offered no obvious way of making the claim.

“I avidly Googled, I went through their website, I went through their app, I went through everything,” she said.

Another Lastminute.com customer described trying to get a refund for his parents’ package holiday as an “absolute nightmare”.

Vick, from Twickenham in south-west London, said he booked the trip to Sorrento, Italy, in April last year for his parents’ 40th wedding anniversary and mother’s 60th birthday.

He said they had “struggled tremendously” to find ways to contact the company for a refund after the trip was cancelled.

“Since then they have been trying to call various numbers to get through to customer support, et cetera, to no avail. Even waking up early to call first thing,” Vick said.

“The cost in total is over £1,000, which is lots of money for retirees. I’ve been assisting and trying to resolve the matter for them, but even I am struggling,” he added.