Holiday firms have been told by regulators to stop profiting from "disproportionate" cancellation fees.

At present firms charge fees of up to 75 per cent if customers cancel even one day after they have booked, meaning they are able to profit at the expense of customers if they are able to resell the holiday.

The problem is particularly rife among firms targeting older travelers, who are often encouraged to book far ahead of time and therefore have a high chance of falling ill before they travel.

Under consumer law, firms may be entitled to ask customers to pay a cancellation fee to cover their losses, but the amount they keep must be in proportion to what they are losing.

Cancellation terms that do not follow this approach are likely to be unfair and businesses cannot rely on them to resolve claims or disputes with customers, the Competition and Markets Authority said.

Paul Latham, the CMA's director of strategy and communications, said: "Nobody wants to cancel a trip or holiday, but if you have to, it's important that you are treated fairly and don't lose out more than is absolutely necessary.