If You Want Real Consumer Protection for Frequent Flyer Programs, Here’s the One Change We Need.

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)]

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. The US3 airlines’ loyalty programs have customers in countries beyond the US too. And President Jimmy Carter’s U.S. Airline Deregulation Act doesn’t protect US airlines from being sued outside of the US. Of course, if that became a material concern for the US3, then they would probably just ban foreign residents from becoming and/or remaining program members.

  2. Thankfully, the change by AA will have no impact in Canada, as our Supreme Court recognized good faith and fair dealing as a universal duty in contract law last year.

  3. You Wrote: “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.”

    Oh, okay. Pick a District Court.

  4. House Report 112-381-FAA Modernization and Reform Act of 2012 sec 408 DOT Airline Consumer Complaint Investigations:

    The Secretary of Transportation may investigate consumer complaints regarding… (6) the rights of passengers who hold frequent flyer miles or equivalent redeemable awards earned through customer-loyalty programs;

    That seems to me the DOT can deal with Frequent Flyer issues and is specifically authorized to do so if they wish.

  5. Gary, If you are serious, you are confusing overturning Ginsberg with seeking a new ruling that is distinguished from it on the facts. If you did find the plaintiff you describe, it probably wouldn’t make a difference in the outcome. And even if that suit was successful, the ruling would be so narrow as to be worthless to 99%+ of ffers. Absent federal legislation, it seems the DOT is our best chance for any relief from the tyranny of ff programs.

  6. What happened to Congress doing its job?

    That hundreds of millions of Americans have been abandoned by their representatives to these scams is quite telling.

  7. I’d rather not rest my hopes on a habitual and incentive motivated complainer. I don’t think any 9 people would sit and see Ginsberg as anything close to being a reasonable person. If that’s the best course then I don’t think we’ll see consumer protection.

  8. I’m with @rrgg. Be careful what you wish for. The headline (and as a suggestion, go back to writing informative rather than clickbait headlines, please) made me think you were going to write about a specific correctable problem that could be addressed. Instead this looks like a generalized wish for the government and the courts to take over decision-making for the programs, and I think that turns out with loyalty program benefits becoming taxable when the courts distinguish between “rebate” miles and “overarching all purpose billion dollar marketing vehicles” miles.

  9. If a FF buys miles and earns off of Citibank credit cards when would they not have the rights to those miles even out of the context of DOT since they were not earned via flying? Could they sue via the banking rules since they 1. purchased the miles under their credit card. 2. earned the miles under the terms of the credit card
    Should the DOJ view this not as just a DOT issue but as a Fair Credit Issue ?

  10. I suspect Delta would be the first to end their FF program if DOT or especially that unaccountable entity (for now) created by Senator Warren were to start regulating FF programs. I have no problem with airlines rarely punishing those who game the system at the expense of the rest of us. I do have a problem with DOT or CFPB in the end punishing all frequent flyers by trying to protect a few.

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