The Department of Transportation is given the power to regulate ‘unfair and deceptive’ practices by airlines. That includes frequent flyer programs.
The Supreme Court ruled in 2014 that consumers can’t sue loyalty programs for acting in bad faith or unfair dealing – only for violating their own program terms. That’s because loyalty programs were seen as a rebating on airfare, because the Airline Deregulation Act precludes states from involving itself in airline schedules and pricing, and because common law claims of implied covenants of good faith and fair dealing were deemed state-level claims.
That left only the Department of Transportation policing loyalty programs, and according to the DOT Inspector General the agency has improperly ignored complaints about frequent flyer programs.
All of a sudden that may be changing. They are looking at:
- advance notice of program changes
- program devaluations
- transparency regarding booking awards
- and rules for transfer of miles
The U.S. Transportation Department is scrutinizing the frequent flyer programs of major U.S. airlines for potential deceptive or unfair practices, the agency said Thursday as regulators step up oversight of the airline industry.
…”We plan to carefully review complaints regarding loyalty programs and exercise our authority to investigate airlines for unfair and deceptive practices that hurt travelers as warranted,” a department spokesperson said. “DOT officials are actively meeting with U.S. airlines and gathering more information on this issue.”
There are two roots to the sudden interest by the Department of Transportation in airline frequent flyer programs.
- This was precipitated by Senators Durbin and Marshall pushing for frequent flyer programs to be investigated as retribution for airlines speaking loudly and publicly against their credit card interchange legislation (especially United CEO Scott Kirby).
Durbin and Marshall are suddenly concerned about how consumers are treated by loyalty programs, even as their proposed law would gut those programs. But if they can paint the programs as unfair, perhaps they moot some of the criticism or concern.
- This is also timed to become a campaign issue, part and parcel of the President’s ‘middle class pocketbook’ agenda. Nothing happens on this front unless the President is re-elected, since there’s unlikely time to develop a rule, put it out for notice and comment, and then finalize before the end of the President’s first term.
I’d prefer that the Supreme Court revisit its Ginsberg ruling, recognizing that loyalty programs aren’t just price rebates on airfare (indeed, most points aren’t earned from flying) and also that common law torts are distinct from state regulation. However in the absence of access to the courts, the DOT – assigned as the consumer’s only avenue of redress – shouldn’t ignore its role in addressing unfair and deceptive practices.
It should, however, recognize that frequent flyer programs are the most successful marketing innovation in history, have tremendous value (and saved American Airlines and perhaps United from bankruptcy during the pandemic, and saved airlines during the Great Recession too), and approach with caution.
It’d be great to see the ability to freely transfer points across member accounts.
Maybe the “mileage” or points will have a use it or lose it date like they used to.
Tremendous value for airlines for sure. Not so much for consumers, who gets a non interest earning “asset” that depreciates on two fronts: devaluation and inflation.
The government regulating FF programs? What could possibly go wrong?
well said, Gary.
and it is also worth noting that there will come a point when airlines will start pushing back at attempts to re-regulate the airline industry, including economic aspects. It is one thing to push for more reliability but it is quite another to start changing the economic terms of the industry.
There are plenty of industries – all, in fact, where price increases is legal. TO pick out airline loyalty programs will be shown to be patently illegal.
But the current administration and its party is trying desperately to cling to what they think will win when it is clear that the majority of Americans say that economically, they do not approve of current policies.
that’s reality, not politics
Getting out the popcorn, and possibly box of tissue for tears (of joy/sorrow).
Expect litigation against any rules the DOT tries to implement. The programs are clearly the property of the airlines and the contract specifies they can make changes at their sole discretion. Not sure what basis the government would have to mandate the ability to transfer miles but the other issues are dead on arrival. First of all what is a “devaluation”? Bloggers love to whine and stir up their audience talking about that but IMHO it is NOT a devaluation if a roundtrip coach ticket now costs 40,000 instead of 25,000 if the price of purchasing the ticket went up by a similar margin and I can’t see any court deciding otherwise. The value of a “mile” isn’t a fraction of a trip but, instead, a value and if that stays in the 1-1.5 cent range based on average ticket prices there is no devaluation.
Also for those welcoming this be very aware of unintended consequences. If the government is able to mandate airlines provide advance notice of changes, limit “devaluations”, etc expect practically all airlines to go to a dynamic model (similar to SW and DL) where the value of a mile is pegged at 1-1.3 cent and fluctuates with the underlying ticket cost. Is that what you REALLY want (especially on international J that would suddenly all be 200,000 miles each way?
Another issue, which the government is in no position to police or tell airlines what to do, is setting qualifications for the various FF tiers in their program so expect that to also rise to reduce the number of people receiving benefits.
Overall, to quote the great Ronald Reagan -The 9 most terrifying words in the English language are “I’m from the government and I’m here to help”
It amazes me that after all these years of failed government programs, an inability to run their own affairs, and clear evidence they only care about themselves, that people still look to the federal government for leadership on anything. This great country was built by a lot of smart, hardworking people. It’s being destroyed by the stupid and lazy.
“I’m from the government and I’m here to help”.
Given how Delta and others have devalued my points over time, I would welcome some measure of regulation. Normally, I am all for the free markets, but living in Atlanta means I am subject to Delta’s near monopoly power. Monopolies do need to be regulated, otherwise they take advantage to earn excess profits.
Regulation could make things worse, like a possible cap on compensation for cancelled Southwest flights to $75.
What might be better would be the previous situation where certain miles never expire but newer miles expire if there is no activity in 3 years. How that would work in this situation is SkyMiles, for example, would have an award chart but new SkyMiles would not.
@AC: You’re acting like business class airfares aren’t ALREADY 200,000 miles each way…
At the most premium airline, business class airfares out of Atlanta to Paris start out at 400k round trip.
Personally, I think we’re just at the point where most people just haven’t realized that airline miles are no longer a worthwhile rewards currency. Reality will catch up. The only airline miles I earn are from flights I’m taking anyway. I commit to a loyalty program for the other perks (the big ones for me personally are United’s same day change policy and really nice C concourse lounge at ORD). I don’t give the miles a thought at all anymore.
DOT intervention is too late. Airline miles have become S&H green stamps- worthless. If they were paper notes at least you could wipe with them or burn them for heat.
It’s ironic that banks are willing to lend on FF programs stated value and which doesn’t say much for the banking industry.
If you haven’t switched to CASH incentives you are holding green stamps.
FF programs are a mess. One party has too much control over the terms and conditions. There is ZERO issue with an airline devaluing miles, but the miles already earned should have redemption rates consistent with the rates that existed when the miles were earned.
Id rather see the DOT show sime interest in addressing the ever shrinking seat width and legroom situation than worrying about my miles…
I feel like most of the commenters advising the government stay out would be happy with ANY predatory or unfair practice of the airlines because private businesses are always right. If I should always be skeptical of government intervention, however well intentioned, why shouldn’t I apply the same degree of skepticism to the private businesses in question?
We need the Government to:
A. Protect out borders
B. Protect out Freedoms
C. Maintain basic government Infrastructure
The rest of MOSTLY trash. It is unbelievable to watch this crap unfold.
Maybe the government can address the ever growing ass size in the flying public vs the seat size
Credit card rewards, frequent flyer miles, all of it is a scam to blind you from reality. Remember, credit card merchant fees have caused everything from food, to gas, to everything we can purchase to inflate prices. Whatever you gain in “cash back rewards” is less than the inflation causes by the credit card. “Oh no I’m losing my rewards”. You’re paying more out of your pocket to cover the merchant’s costs. Credit card rewards are just bread crumbs.
Just a bunch of fools whining out here over bread crumbs
I’m unsure what regulation would work, though a little incentive realignment would help. I’m fascinated by how much more rewarding hotel programs are than airlines. I assume part of that is the rewards program is run by a parent company, while the rewards are fulfilled by a franchisee. The hotels can treat their loyalty programs as a tax on the individual businesses flying their flag. Could we decouple airline loyalty programs from the airlines themselves? I guess, in many ways, the bank transferable points are already like that. They provide a menu of redemption choices for the customer, and airline programs have some incentive to provide good value in order to channel more of the bank points into their coffers. The international programs have this figured out, and they do compete for our money to some extent.
Smoke and mirrors ….Wait for the. Announcement about filing taxes you will report mileage used at the rate set have DOT ….Just another ..The idea has always been I n their mind’s…Just. Wait and see after the election ….
The government would have a stronger case that changing the terms on paid lifetime United Club memberships was theft. Delta and American reversed their changes requiring travel on their airline or partners. United shamefully did not.
Frequent flyer members have been getting hosed for decades so I’m pleased that the government is suddenly taking an interest in that, though it might have been much simpler if earlier waves of complaints hadn’t been blatantly ignored. I think that one change that would be incredibly helpful would be if ff programs let you redeem at the price in existence when the miles hit your account. That and a mandatory 90 day notice on devaluations would make it so that people accumulating miles for a big trip wouldn’t be left out in the cold. The programs don’t need to be demolished; the playing field just desperately needs to be leveled a bit.
Government and courts should have done this long ago. Airline loyalty programs are not merely loyalty programs as the name suggests. The moment, they allowed to sell points/miles for money, it’s considered as equivalent to money not merely discount. No other business can sell something and next day devalue it’s value by 20-50%
Maybe instead of focusing on FF programs, DOT can focus on airlines shoving as many seats as they can into aircrafts and providing as little as possible with higher air fare costs
Hi, I’m Pete Buttigieg. I’m with the US Government and I’m here to rescue you from evil.
Anyone who buys into this believing this is some of move to “protect” the working men and women of America is a fool and ignores the unbroken history of abuse failure wherever the government gets their fangs into anything. This will amount to nothing less than a total screwing of the travelling public.
There are many things that are unfair and wrong with US frequent flyer programs but, overall, they are a great benefit to those who actively participate in the programs. I would note that these programs have actually gotten BETTER for consumers in recent years, especially with the now easy refundability of most award tickets. There is a zero percent probability that active meddling in these programs by the government will make them better. This is not something government would ever be able to accomplish.
Never, ever let the fed elephant put its snout under your tent