Summary
- US Department of Transportation is investigating potentially deceptive or unfair practices in frequent flyer programs, including transparency and devaluation of miles.
- Senators Durbin and Marshall argue that airlines can change points programs without notice, creating unfairness for consumers.
- Proposed legislation to tackle Visa and Mastercard fees is being actively lobbied against by airlines, as they claim it would harm popular loyalty programs.
The US Department of Transportation (DOT) is analyzing the frequent flyer programs of US airlines, looking for potential deceptive or unfair practices, Reuters reported on Thursday. This scrutiny comes months after two US senators asked the DOT and the Consumer Financial Protection Bureau about “troubling reports” in the frequent flyer and loyalty programs.
Looking at potential deceptive practices
The regulator is stepping up its airline industry oversight and looking for potential deceptive and unfair practices within the frequent flyer programs.
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Some of these practices include transparency when booking award tickets and the devaluation of frequent flyer miles over time. In a statement sent to Reuters, the DOT said,
“We plan to carefully review complaints regarding loyalty programs and exercise our authority to investigate airlines for unfair and deceptive practices that hurt travelers as warranted. DOT officials are actively meeting with US airlines and gathering more information on this issue.”
Where does this come from?
On October 30, 2023, two US senators, Richard J. Durbin and Roger Marshall, sent a letter to the DOT and the Consumer Financial Protection Bureau asking what they are doing to protect consumers against unfair and deceptive practices in airlines’ frequent flyer and loyalty programs.
The two senators claim that frequent flyer programs have evolved to include co-branded credit cards “and now often significantly or exclusively focus on dollars spent using these co-branded credit cards” instead of their original purpose, which was to incentivize and reward true frequent flyers.
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The senators argued airlines can make changes to their points programs without notice to consumers. They incentivize consumers to purchase goods and services, obtain credit cards, and spend on those credit cards in exchange for promised rewards – they wrote – all while having the power to take away those rewards at any moment.
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Additionally, the senators argued that the disparity between the value of points at purchase and redemption is highly unfair to the consumers. “Airlines allow consumers to directly purchase points from the airlines’ websites. But the cost of directly purchasing points can sometimes be three times the value of the points at redemption.”
A bill airlines are lobbying against
Reuters reported that Durbin and Marshall are collaborating on a bill to tackle Visa and Mastercard fees. The proposed legislation intends to enhance competition by instructing the Federal Reserve to guarantee that major banks issuing credit cards provide consumers with at least two networks for processing electronic credit transactions. The fees are typically about 2% of a transaction and are paid by consumers through higher prices by the retailers. Through co-branded credit cards, airlines are also paid each time the cards are used. For example, Delta expects to earn $7 billion from its program with American Express in 2023.
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However, in October, top executives of Delta Air Lines and United Airlines warned against this legislation. Airlines are actively lobbying against the bill. They…
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