One of the most significant roles of the U.S. Department of Transportation (DOT) is in protecting airline consumers from “unfair and deceptive practices” and “unfair methods of competition” by air carriers and ticket agents. This authority is found in Section 41712 of the Transportation Code (49 U.S.C. § 41712) and forms the statutory basis for some of the DOT’s most broad-reaching and controversial regulations and enforcement actions.
Yet, surprisingly, the key statutory terms — unfair and deceptive — are not defined in the statute, nor has the DOT ever attempted, until now, to define them. Instead, they have been used very liberally and even aggressively to impose regulations on air carriers and ticket agents that, in the opinion of many, run contrary to the pro-market mandate of the Airline Deregulation Act of 1978.
On February 21, 2020, however, DOT Secretary Elaine Chao announced to a gathering of international aviation lawyers in New York that DOT, for the first time, is proposing definitions of these terms and other procedural protections designed to prevent their abuse. This move was in response to increasing pressure from airlines to bring DOT’s regulatory discretion in line with Congressional intent. The Notice of Proposed Rulemaking was published in the Federal Register at 85 Fed. Reg. 11881, et seq. (February 28, 2020.)
In recent years, using these statutory criteria, DOT has promulgated rules to require carriers to adopt contingency plans for lengthy tarmac delays, define and prohibit “chronically late” flights, require carriers to adopt customer service plans, impose detailed regulation of airline fare advertising and websites, require disclosure of code-sharing arrangements, regulate electronic display of fare and schedule information by ticket agents, as well as other obligations. DOT has also taken a number of enforcement actions against individual carriers for acts that were inadvertent and lacked any showing of harm to the public, on the basis that it deemed the actions unfair or deceptive. Airlines have been increasingly concerned by what appeared to be DOT’s unfettered discretion in expanding the meanings of these terms beyond what the statute contemplates.
In response to DOT’s October 2017 initiative to reexamine the entire aviation regulatory structure as part of the Trump administration’s “regulatory overhaul,” Airlines for America (A4A), the trade association of large U.S. airlines, submitted comments that challenged DOT to more closely adhere to Congress’ directive to “plac[e] maximum reliance on competitive market forces and on actual and potential competition” in regulating aviation for the benefit of the public. A4A noted that the unfair and deceptive standard originated in the Federal Trade Commission Act amendments of 1938, which, as interpreted by the FTC and amended over the years by Congress, has a much more specific meaning than DOT has applied.
DOT’s proposed rule would largely follow the FTC’s standards, including specific definitions of “unfairness” and “deception”:
(1) A practice is “unfair” to consumers if it causes or is likely to cause substantial injury, which is not reasonably avoidable, and the harm is not outweighed by benefits to consumers or competition.
(2) A practice is “deceptive” if it is likely to mislead a consumer, acting reasonably under the circumstances, with respect to a material matter. A matter is material if it is likely to have affected the consumer’s conduct or decision with respect to a product or service.
The DOT proposal, significantly, adds a provision holding that “proof of intent is not necessary to establish unfairness or deception ….” Thus acts that are entirely inadvertent on a carrier’s part may still be sanctioned under the consumer protection rules.
DOT also proposed to adopt a more liberal procedural approach to rulemaking when dealing with regulations based on the unfair or deceptive standard. DOT would allow for parties to petition the general counsel for a formal rulemaking hearing, even on proposed rules that would not rise to the level of “high impact” or “economically significant.” A hearing would be required if a petitioner demonstrates that material issues are in dispute, and that the ordinary public comment process is unlikely to provide an adequate basis for a fully informed judgment.
DOT has not proposed to scale back existing consumer protection regulations and no doubt will continue to pursue violations of those rules. The current proposal, however, gives some reason to believe that DOT may be more circumspect in the future in proscribing and penalizing air carrier behavior that only threatens insubstantial or purely theoretical harm to consumers. It is expected that airlines and airline trade groups will support the proposal, while consumer groups may be more skeptical.