Sunday, March 6, 2011

Buyer Beware: Airline Fined $90,000 for Deceptive "Bumping" Practice

Imagine you are in the airport and hear this public announcement by your airline:

"We have a completely full flight this evening.  If you volunteer to give up your seat on this flight, we will get you on the very next flight AND give you a voucher for future travel on any flight of your choice."

Good deal, right?  Too good to be true?  Apparently so.

The United States Department of Transportation ("DOT") recently imposed a "civil penalty" of $90,000 and issued a cease and desist order with American Airlines on the basis the airline did not reveal that the vouchers given to passengers who "voluntarily bumped" themselves off of oversold flights came with a catch -- namely that passengers could redeem the vouchers only after paying as much as a $30 ticketing fee.

Under applicable law, air carriers must fully disclose fees and significant use restrictions in connection with offers and solicitations for passenger air transportation, including those made with respect to compensation to volunteers in oversales situations.  In its order against American Airlines, DOT made clear that it "considers instances in which notice of fees or significant terms of an offer are withheld, obscured, or disclosed only after the customer has accepted to be an unfair and deceptive practice and unfair method of competition in violation of 49 U.S.C. § 41712."

American Airlines challenged the charge, arguing that (1) the general legal prohibition against unfair and deceptive practices where there is no specific regulation or guidance is "inherently subjective," (2) the airline's consumer problems associated with voucher distribution in oversales situations were minimal; and (3) it has an excellent record of compliance with DOT's consumer regulations and "consistently ranks favorably in the Department's monthly air travel consumer reports."

DOT nevertheless found "that American Airlines, Inc. violated 49 U.S.C. § 41712 by failing to fully and accurately disclose the amount of fees and significant use restrictions applicable to travel vouchers offered and provided to passengers as compensation for voluntary denied boarding at the time the offers were made" and assessed the airline a compromise civil penalty of $90,000.  Of the total assessed half of the penalty, $45,000, becomes due only if the airline violates the cease and desist order within the next year or otherwise fails to comply with the DOT's ruling.

This is the first penalty issued by DOT against an airline for failing to disclose fees or other restrictions on the use of oversales vouchers.  That said, DOT's action is consistent with what appears to a be heightened consumer protection vigilance and enforcement by federal aviation regulators traveling under the broad heading of "unfair and deceptive practices."

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