LoveHolidays has agreed to refund over £18m to 44,000 customers who had holidays cancelled over coronavirus.
It follows action by the Competition and Markets Authority, which received hundreds of complaints.
The regulator said that LoveHolidays had told customers asking for a refund on flights that they would only receive it when the firm received money back from the airlines.
LoveHolidays has now committed to repay customers in full by March 2021.
The CMA said it would allow the company that time in order for it to manage its financial position.
But it warned LoveHolidays: "If the firm fails to repay customers by these dates, the CMA is prepared to take the company to court."
So far, £7m has been refunded to 20,000 customers.
Apologies
LoveHoldays told the BBC it had been "working tirelessly since March to do everything we can to ensure our customers receive their money".
It said it had refunded more than £205m owed to over 180,000 customers, which it said, was the equivalent of 10 years' worth of refunds in eight months.
It apologised it had taken much longer than normal to process refunds.
Under the Package Travel Regulations, online travel agents are legally bound to refund customers for package holidays cancelled due to coronavirus, regardless of whether or not the agent has received money back from suppliers, for example airlines.
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.
"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."
It marks the latest action taken by the CMA against holiday firms over failed refunds for trips cancelled due to the coronavirus crisis.
The CMA has already secured refund commitments from Lastminute.com, Virgin Holidays, Tui's UK business, Sykes Cottages and Vacation Rentals.
It has also written to more than 100 package holiday firms to remind them of the consumer protection laws.
https://news.google.com/__i/rss/rd/articles/CBMiLGh0dHBzOi8vd3d3LmJiYy5jby51ay9uZXdzL2J1c2luZXNzLTU1MzE0NTMy0gEwaHR0cHM6Ly93d3cuYmJjLmNvLnVrL25ld3MvYW1wL2J1c2luZXNzLTU1MzE0NTMy?oc=5
2020-12-15 09:27:00Z
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