I wrote earlier in the week about the shocking change American AAdvantage made to its terms and conditions: the program specifically said they have no “duty of good faith and fair dealing” with members.

The scary fact is that no U.S. airline frequent flyer program does.

This is a specific legal term of art, and flows from the Supreme Court’s decision in Northwest vs. Ginsberg last year.

We Have Almost No Right to Sue Frequent Flyer Programs

Rabbi Ginsberg was kicked out of the Northwest Worldperks for making too many complaints, he gamed the program for compensation in the extreme, and then sued for having his perks taken from him. This was the worst possible litigant to put in front of the Supreme Court with consumer protection on the line — but not for the reason you might think.

The Airline Deregulation Act says that individual states cannot regulate airlines’ rates, routes, and services, and that makes a certain amount of sense for a national transportation system.

What was at issue in the case was whether or not a claim in state court against a frequent flyer program could rely on that state’s doctrine of good faith and fair dealing in interpreting the program’s rules.

The Supreme Court in essence decided that:

• A state contract claim reading in a doctrine of good faith and fair dealing is that state regulating a frequent flyer program.
  
• A frequent flyer program is part and parcel of an airline.
  
• A frequent flyer program is more or less a rebate on air travel, so regulating a frequent flyer program is regulating airline pricing.
  
• Therefore the Airline Deregulation Act, which preempts state regulation of airlines, also preempts state court claims based on good faith and fair dealing against frequent flyer programs.

This was a unanimous decision by the Court. And it meant that you basically can’t sue a frequent flyer program, except for actually violating the terms and conditions of the program, which is pretty much impossible because program terms normally go to great pains to promise you nothing.

We’re in a Double Bind: Our Only Venue of Redress is the DOT… Which Doesn’t Regulate Frequent Flyer Programs

Under the Airline Deregulation Act, instead of state claims of good faith and fair dealing your recourse is to the Department of Transportation. Which doesn’t regulate frequent flyer programs.

Now, one solution would be for the Department of Transportation to regulate frequent flyer programs. That may be appealing to some that want to stick it to the programs, and it may even be better than a world where consumers have no recourse at all.

It hardly seems like the best option. The DOT will surely be subject to regulatory capture (it’s the airlines who will most have its ear). And bureaucrats determining how many award seats on a given route is reasonable strikes me as something that can’t end well, or actually making consumers better off. Moreover, seeing what the credit card marketing office of the Consumer Financial Protection Bureau has done to credit card companies (executives spend much of their time now answering frivolous complaints) hardly makes me long for this world.

The Simple Solution to Consumer Protection is to Overturn Ginsberg. Here’s How.

Here’s what we actually need. We need to overturn Northwest vs. Ginsberg. You would think that it would be tough to overturn a 9-0 Supreme Court decision, but in this case it really shouldn’t be.

The case barely touched on the way frequent flyer programs have evolved being merely rebates on purchased air travel.

The litigant Rabbi earned his miles and status by flying, and his complaints were about the loss of flight perks. In the lower courts there simply wasn’t a well-developed record on frequent flyer programs as the overarching all-purpose billion dollar marketing vehicles that they’ve become, in some cases even as separate and distinct enterprises from the airlines they’re associated with.

Not everything an airline does is exempt from state regulation. The Airline Deregulaton Act doesn’t exempt Delta from state-level lawsuits against its oil refinery.

We need a consumer with a valid claim against an airline who has earned all their points from non-flight activity and who either redeems their points for non-flight awards or who at the very least hasn’t redeemed their points for airline travel.

That consumer can distinguish their cases from Ginsberg, and could (over the course of several years, unfortunately) have their voice heard in the Courts. It will be an expensive proposition (though far less expensive than building the mechanisms for DOT oversight). But it could succeed. And we’d have back the Courts as a check against the worst excesses of the programs, whereas now they’re more or less unchecked.

[For more on the importance of the tort system as regulator, and the dangers of legislatively pre-empting the courts as an avenue of redress, see John Hasnas, What’s Wrong With a Little Tort Reform?, 32 Idaho Law Review 557 (1996)]