The Association of British Travel Agents (Abta) is reducing the protection for customers offered by its code of conduct for travel agents.
The ABTA code will no longer be OFT-approved
From 1 September, compensation will no longer be paid to people who have lost money to a dishonest travel agent.
Abta says this sort of thing normally happens only once a year.
The change has been criticised by the Office of Fair Trading (OFT), which has withdrawn its approval for the Abta code of conduct.
Abta spokesman Keith Betton defended the decision.
"The protection we give to customers is pretty much the same except where one of our members chooses to be fraudulent - that doesn't happen very often, thankfully," he said.
"When that does happen we are not prepared to pay out in the future. We believe that's a matter for the police."
Abta says it will back any customer's complaint to the fraud squad if they do lose money with a dishonest travel agent.
However, few of the UK's police forces are resourced to investigate small-scale frauds - unless they form part of a much wider pattern of fraudulent behaviour.
Abta's move has so upset the OFT that it is removing the code from its list of those it has approved.
The OFT said it was doing this because it would not provide as much protection as before.
"We are disappointed that Abta has taken the decision to change its code and withdraw from the scheme," said Colin Brown of the OFT.
"The new Abta code differs from the previous one in a number of ways, including significant changes to its financial protection scheme."
The concept of an approved code was launched by the OFT in October 2005.
The other bodies which are currently approved are the Society of Motor Manufacturers and Traders, The Vehicle Builders & Repairers Association, the Direct Selling Association and the Ombudsman for Estate Agents.
Others are in the pipeline for full approval.
Nearly two thousand travel agents and tour operators are members of Abta.
As part of their obligations they are required to provide financial protection in case they go bust, as well as abide by guidelines on advertising, booking procedures, surcharges and dealing with complaints.
When Abta revamped its code earlier this year it promised that holidaymakers would find it easier to get a refund if their holidays went wrong.
It introduced an arbitration service to decide on levels of compensation for disgruntled customers.