The Competition & Markets Authority (CMA) has wanted lastminute.com it faces legal action unless it pays a number of outstanding refunds to customers.
The company signed formal undertakings in December which committed it to pay out over £7 million to more than 9,000 customers when their holidays were cancelled due to the Covid-19 pandemic.
All those affected were due to get their money back by the end of January.
However, the company still owes over £1 million to 2,600 customers, with consumer rights organisation Which? calling for action earlier this week.
The CMA said lastminute.com also 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 3rd.
On top of this, the company told some package holiday customers to go directly to their airline to get the cost of their flight back.
This is also in breach of its commitments and against its obligations under the Package Travel Regulations.
The CMA has informed lastminute.com that it will take court action if it does not repay the outstanding refunds within seven days.
To avoid court action, the company must also ensure that customers who book their package holidays from now on will receive a full refund within 14-days where they are legally entitled to their money back following the cancellation of their package holiday.
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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 response, lastminute.com said almost 50,000 package holiday customers have already been refunded more than £40 million and only £1.3 million pending.
Every effort was being made to complete these refunds as promptly as possible, the company added.
Andrea Bertoli, managing director of lastminute.com, said: “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.
“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.
“We had already outlined to the CMA a detailed action plan to manage all pending cases and continue to work to get all customers repaid.”
