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US Department of Transportation Proposes to Formalize Definition of Airline Unfair & Deceptive Practices

The US Department of Transportation ("Department") recently published a proposed rule to codify the definitions of "unfair" and "deceptive" practices by airlines and ticket agents under 49 U.S.C. § 41712 ("Proposed Rule"). The Proposed Rule would also require the Department to articulate its rationale for concluding that a practice is unfair or deceptive where no existing regulation governs the practice, apply formal hearing procedures for discretionary rulemakings, and codify the Department's longstanding practice of offering airlines and ticket agents an opportunity to be heard prior to a final action by the Department. While as of the date of writing the period for submitting formal comment on the proposal has not expired, the proposal appears to enjoy support from airline and ticket agent associations as the Proposed Rule would provide welcomed transparency and certainty to airlines and ticket agents.

The Department's Authority to Regulate Unfair and Deceptive Practices

The Department is empowered by Section 41712 to regulate "unfair and deceptive" practices of airlines and ticket agents. The Department's authority to regulate US and foreign air carriers is carved out of Section 5 of the FTC Act, 15 U.S.C. § 45 ("FTC Act"), which grants the FAA authority to prohibit unfair and deceptive practices. The Department and the Federal Trade Commission ("FTC") have concurrent jurisdiction over ticket agents in the sale of air transportation. While the FTC has formal policies and procedures for determining practices to be unfair or deceptive and to provide opportunities for hearings, the Department does not.

Instead, the Department has historically relied on its general authority under Section 41712 to regulate unfair and deceptive practices on an ad hoc basis, through informal guidance and policy statements as well as consent orders with air carriers and ticket agents.

In recent years, the limits on the Department's authority to regulate unfair and deceptive practices by airlines and ticket agents have come under scrutiny. Without clear regulations on which practices may be unfair and deceptive, compliance becomes increasingly difficult particularly as new and complex issues related to technology and privacy emerge.

The Proposed Rule

The Proposed Rule would address industry requests to align the Department's definitions and procedures with the principles established by the FTC. Importantly, it would codify the Department's longstanding practice of allowing parties to be heard and present evidence before the Department makes a final decision.

First, the Department's proposal would codify the definitions of "unfair" and "deceptive," clarifying the scope and limits of its regulatory authority under Section 41712. According to the Department, the proposed definitions of unfair and deceptive "reflect [the Department's] longstanding interpretations of the terms." The proposed definitions mirror the definitions used by the FTC in applying Section 5 of the FTC Act. The two terms are defined in the Proposed Rule as follows:

  • 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.
  • A practice is "deceptive" to consumers 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 Proposed Rule states that "proof of intent is not necessary to establish unfairness or deception for purposes of 49 U.S.C. 41712."

Second, when promulgating new rules under its authority to regulate unfair and deceptive practices, the Department would be required to explain how the practice is unfair or deceptive. In future rulemakings under Section 41712, the Department would be required to "articulate the basis for concluding" that a practice is unfair or deceptive to consumers, using the codified definitions of those terms. For example, if the Department were to issue rules declaring a particular practice to be unfair, it would need to explain (a) how the practice is likely to cause substantial injury to consumers, (b) why the injury is not reasonably avoidable, and (c) why the harm is not outweighed by benefits to consumers or competition.

Interested parties would be allowed to request a formal hearing before the issuance of final rules if any scientific, technical, economic, or other factual issues are in dispute. The Department could deny the request based on its determination that a hearing would not advance its ability to make the required rulemaking determinations or would cause unreasonable delay. Before finalizing proposed rules, the Department would be required to explain its decision and respond to the hearing record.

These requirements would not apply to rulemakings mandated by statute (e.g., the elimination of maximum levels of compensation owed to passengers involuntarily denied boarding, required by the FAA Reauthorization Act of 2018). They would only apply to discretionary rulemakings.

Finally, the Department's enforcement proceedings would undergo similar reforms. In enforcement proceedings involving regulations issued under Section 41712, the Proposed Rule would codify the Department's "longstanding practice" of offering airlines and ticket agents the opportunity to present evidence in support of their positions. In addition, where informal enforcement proceedings result in the issuance of a consent order declaring a practice to be unfair or deceptive, and no Section 41712 regulation applies to the practice, the Department would be required to articulate the basis for concluding that the practice is unfair or deceptive, as that term is defined in the Proposed Rule.

In recent years, many industry practices, such as charges for ancillary services (e.g., checked bags and seat assignments), have been scrutinized by the Department and consumer groups. Those practices could be considered inconvenient to consumers, but do not necessarily rise to the level of unfair or deceptive under the Proposed Rule. The Department would likely need to establish more than passenger inconvenience to issue new regulations on those practices, and interested parties would be given additional opportunities to be heard in the process.

Other areas that might be impacted by the Proposed Rule include:

  • Ancillary Fees: In 2017, the Department proposed and later withdrew regulations that would require airlines to redesign their websites to calculate and display customer-specific checked baggage fees at every point of sale. Should the Department again seek to regulate ancillary fees, the Proposed Rule would require the Department to demonstrate that the airlines' current practices meet the codified definition of unfair or deceptive.
  • Airline Flight Information Distribution: The Proposed Rule would impact any Department efforts to regulate the terms on which airlines distribute their fare, schedule, and seat availability information to online travel agencies and metasearch entities.

Conclusion

In summary, the Proposed Rule, if made final, would provide welcomed transparency to airlines and ticket agents, as well as certainty in the Department's process of establishing and enforcing prohibitions on unfair and deceptive practices.