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Airline declines credit card, then hires collection agency to extract $510 “cancellation” fee

September 1, 2010

Kalevi Ruuska contacted me with an urgent problem recently. One of his friends was being asked to pay an odd cancellation fee by Air Berlin, and would not take “no” for an answer. The airline had hired a collection agency to pursue its claim.

His story underscores a fact few of us here in the United States seem to understand: No matter how bad airline fees are here, they’re worse in Europe.

It also suggests that when it comes to surcharges and ancillary fees, there’s a lot of room for growth. I almost hesitate to write about this case, because it might give some of the more fee-happy airlines here in the States ideas for making more money.


Here’s Ruuska’s problem:

Stuttgart-JFK flights were booked for four people. The purchase goes through using a US credit card (MasterCard), but a few weeks later Air Berlin sends a note that the card was declined, and that they have cancelled the reservation.

But there was nothing wrong with the card, but rather Air Berlin IT system has a problem with American credit cards. The family was already in Europe, and didn’t see the the note.

Then Air Berlin requests the client to pay a cancellation fee — of the cancellation they did themselves!

I know that their contract terms have a reference to the client being responsible for credit card companies’ non-payment to them. But my logic just doesn’t accept that if you get an OK, when booking the flight, it can still be cancelled weeks later!

Is any reservation at Air Berlin safe? They might cancel any time if their logic is followed.

That’s not the worst of it, though.

Air Berlin has hired a collection agency to collect a $510 cancellation fee. They threaten to sue my friend in court, unless the amount is paid within 30 days. Do we need to pay this, and fight afterwards, or should we just go to the court, or is there something else we can do?

I asked to see the correspondence between Air Berlin and his friend. But the collection notice had spooked him enough that he paid the fee before I could contact the airline on his friend’s behalf.

That’s very disappointing.

I’ve written about Air Berlin’s dubious cancellation policy before. In that case, the airline apologized for the inconvenience, but insisted it was correct.

Indeed, the charges are disclosed in Air Berlin’s terms.

Under section 2.4,

If a credit card company or bank refuses to settle the claim arising from the contract for reasons that are the customer’s responsibility, the customer shall be required to pay a flat rate of 10 EUR as compensation for the bank’s return debit note. The customer is free, under German law, to prove that the airline did not suffer any loss or that the loss incurred was significantly less.

Otherwise the Airline shall also be entitled in this case to terminate the contract after unsuccessful payment request, subject to a deadline in accordance with sections 5.1.1–5.2 and levy the corresponding charges stipulated therein. Sections 5.3 and 5.1.4 shall apply accordingly.

Section 5.1 states,

5.1.3. If a long-haul flight (the great circle distance between departure point and destination being at least 3,000 miles) booked as a saver fare is not taken or is cancelled, the Airline is entitled to charge the following amounts, unless the circumstances resulting in the flight not being taken or being cancelled are the Airline’s responsibility or due to force majeure:

up to 21 days before departure: 20 % of the fare
up to 14 days before departure: 30 % of the fare
up to 7 days before departure: 40 % of the fare
up to 1 day before departure: 50 % of the fare
on day of departure: 100 % of the fare (net).

As outrageous as this might seem, I’m afraid this might be the future of fees. And in a sense, this is the perfect fee.

Can Ruuska prove the card was declined because of Air Berlin’s IT problem? No. Can he show that the fee his friend was forced to pay was illegal? Probably not. Can he, or his friend, say “no” when a collection agency comes calling? Apparently not.

But it doesn’t take an airline analyst to see how wrong this cancellation fee and its enforcement is. It is outrageous, and it’s probably illegal, and it’s definitely unethical.

I’m not entirely sure what to tell the next passengers who get smacked by Air Berlin’s fees. Should they pay the cancellation fees, ignore them, or fight them?

(Photo: Vito/Flickr Creative Commons)

Christopher Elliott is the author of Scammed: How to Save Your Money and Find Better Service in a World of Schemes, Swindles, and Shady Deals. Critics have called it “eye-opening” and “inspiring” — it’ll “grab your attention and won’t let go.” Order your copy now on Amazon, Barnes & Noble or iTunes.

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33 comments

  • Eric

    I’m a little confused. Did Air Berlin cancel the reservation AFTER they had travelled on the first leg of the trip?

  • Clay

    Simple answer: don’t fly Air Berlin (following the Ryanair rule). Reputable airlines don’t behave like this. Thanks for the warning.

  • Chris in NC

    Wow! Makes the US based airlines look good!

    Couple of hypothetical questions…
    1) If you use a TA or booking agent, who would be responsible for the so called cancellation fees?
    2) The article implies that the OP (Mr. Ruuska) is ex-pat living in Germany. Is he being threatened to being sued in Germany or the US?
    3) Would a foreign collections agency be able to pursue a case here in the US? or report to the credit bureaus?
    4) If this is indeed a foreign collections agency and they cannot sue in the US or report to the credit bureaus, what would happen if you ignore it? Would you just be blacklisted or does German law allow for your detainment if entering the country?

  • http://golodgings.com Martin Smith

    I have some knowledge of German consumer laws and they are some of the toughest in the world. My suggestion would be to find someone that speaks and writes German fluently to write to the bureaucracy in charge of consumer items (sorry I don’t remember this at the moment) and take up the issue. No German would ever let them get away this.

  • Shirley Schultz

    I wonder if hotels, cruise lines, tours etc. understand just how much this nonsense with airline fees impacts them. Not only does it take revenue out of their bottom line, but it discourages possible tourism and clients. We had a cruise booked for Europe this coming October, but were so appalled by the shenanigans of the airlines pricing, plus being treated like cattle, surcharges on clothing (we use Celebrity Cruises and they like their “formal nights” which we are dressing for less and less — who can afford to bring the clothes?) and long flights with inadequate leg room, we cancelled. We’re planning on taking a bus to Ft. Lauderdale and boarding there for a Carribbean cruise. Fortunately, we can.
    But I wonder if people began complaining in writing, e-mail or whatever is traceable to Chambers of Commerce, State Government, Hotels, Cruise lines or other places of tourist interest on how their trip was impacted and the cost to THEM, it might eventually have a positive result. Don’t bother complaining to the airlines. They don’t give a flip.

  • Philip

    this is extremely unethical of Air Berlin as it was them who cancelled the reservation and also did not give an opportunity to the customer to pay by other means.
    I have often had my Master Card ‘refused’ in the UK, the latest on a ferry crossing the Channel last week. They would not accept Amex…fortunately I had my Visa as well…my ‘refused’ MC was accepted at my hotel in France without issues. One wonders how these CC are checked when one hands over the details.

  • Steve

    Wow. There are so many bizarre issues here, and none of them seem like they’d be the customer’s fault if the facts are true.

    First off: how on earth can an airline justify cancelling a reservation a month after it’s paid for, period? If there had in fact been a problem with the credit card – whether it was the customer’s fault (insufficient funds) or the airline’s (bad processing) – shouldn’t it have been caught shortly after the reservation was made?

    Second, assuming there was a problem with the credit card, the airline should have contacted the customer and asked for another form of payment rather than summarily cancelling the flight. I’d say this even if they weren’t trying to also extract an obscene cancellation fee, but that goes double since they are.

    That said, reading over section 5.1.3 above, I don’t find the fee structure itself to be all that bad. It makes sense that the fee for canceling a nonrefundable flight (which is what I’m assuming a “saver fare” to be) would be less if you cancel well in advance, and higher as you get closer to the travel date. Frankly, it’s probably a fairer system than what some of the U.S. airlines do if you cancel well in advance, since they’ll charge an exorbitant change fee even if your plans change six months out and they can resell the flight (and on cheap flights, the change fee can be as much as the ticket itself).

    The issue here isn’t that their fees for cancellation are outrageous, necessarily – it’s that this customer’s flight never should have been cancelled at all.

  • Carver

    Perhaps its the attorney in me, but I want to make sure I understand.

    If the payment advice is declined, you can’t take the trip AND you have to pay for it?

    Is that what Air Berlin is saying? That’s double dipping and highly unethical although I am not knowledgeable about German business ethics.

  • Clifw

    A lot of American credit cards have problems processing in Europe as they don’t have the microchip (‘la puce’- flea- in French). Theoretically, it chould still be able to be entered manually but usually the merchant will just ask for another form of payment. The NY Times did a story on this just recently.

    I second Martin’s comment- get a German translator and spend some time online reading up about the EU. Europe’s consumer protection laws are the toughest in the world, but to the extent I’m surprised that Air Berlin’s contract of carriage hasn’t been challenged before. Of course, the cost of this could end up exceeding the $510.

  • Tanya

    This is a tough case. And maybe an instance of buyer beware, since the terms are spelled out in the contract (whether we agree with the terms or not, that is our choice as a customer). The best advice, don’t fly air berlin until they change the policy, they do have plenty of competitors. I think if they had fought the charge, that they may have been able to prove that the IT system has a problem accepting US credit cards. Especially since Mr. Elliot has a documented case of it happening before. Air Berlin cannot claim it did not know of the problem. I do wonder why more people have not experienced the problem, or if they just ignore the threats.
    While I think this contract is absurd and slightly usurious, we cannot always blame the company, when the policy is spelled out. If you do not agree with this contract, choose another airline. Now, if all airlines have the fine, then the consumer does not have a choice and that is when government should (if they, or their supporters feel it is a problem) step in a regulate. Or when consumers finally feel they have had enough and stop flying or fight the charges every time they are levied.

    If the OP wants to reclaim the money, he may try filing in a small claims court, as I am not sure trying to recoup the fines with the airline will work since he has paid it already. I also don’t know what the jurisdictional rules are for filing a claim in the US against a foreign company. I say fight the fine the next time. Especially since it rarely (want to say never) takes 2 weeks for a credit card to be declined. Air Berlin knew or should have known that there was a problem within a few days (at most) of purchase and could have utilized a telephone call rather than an e-mail to rectify the problem.

  • Mary Graham

    Fight them, not other choice now. It’s the only way we can even begin to send a message “We’re not going to take it anymore!”

  • MVFlyer

    Question: were the tix purchased in the US? If so, doesn’t US credit card laws prevail?

  • Lisa S

    Thanks for the warning to never fly Air Berlin. It seems that Air Berlin is aware of this problem, based on the fact that Chris had to intercede once before, and prefers to collect cancellation fees. I say don’t fly them!

    Good luck to anyone who takes on this problem via the German bureaucracy!

  • Alex Stevens

    Chris -

    You ask “Can Ruuska prove the card was declined because of Air Berlin’s IT problem? No.”

    Actually, credit card companies know when they decline a charge. I’ve had vendors tell me a charge was declined, called my company and had them tell me it was never submitted, but was in fact vendor processing error. Kalevi should call his card company and ask if they declined the charge from Air Berlin and if so, why.

    If the charge never went through, or was declined because of something Air Berlin did/failed to do, then he has much more ground to stand on.

  • Abhi

    I would say file a complaint with DOT in addition to sending a note to credit card company for giving its account regarding declined charges. If Air Berlin wants to do trans-Atlantic business, they are required to follow DOT guidelines, just like any flight that originate or terminates in Europe has to follow European codes. DOT has been very alert these days with practices like this.

    The airline should have notified the passangers well in advance of the issue. Alternatively it should have let the passengers settle the charges at the airport before they boarded the return flights without any cancellations.

    Thirdly, they should have declared their inability to process US credit cards during the booking stage if it’s the credit card system compatibility issue. I have traveled over middle east, Europe and Asia and never had any issues with any major US credit cards compatibility. It is quite ridiculous that the airline would want to do business in US but not accept any US credit cards.

  • Josh

    I agree that customers should fight this sort of treatment (and Chris should help when he can!). This case is greatly complicated by the international part, and the fact that they paid the bill, but perhaps future victims can be successful.

    It’s not as simple as pointing to the contract terms; consumer contract terms that are illegal, without consideration, or just unenforcable are automatically invalid. A term specifying an extra fee for something completely under the airline’s control (submitting the charge properly) is clearly unfair.

    I’m sure the lawyers here will refine, but I believe the proper response is to state verbally and in writing to the airline and any collection agents (who are liable if they purchase an invalid debt) that you do not owe anything, will not pay, and will hold the company and individuals responsible if reported to a credit agency.

  • MVG

    Perhaps the US Consulate in Germany would be helpful here. They should have someone on staff with knowledge of the German legal system. At the very least, they might issue a warning to US citizens in Germany not to fly with this airline, and that alone might have some weight.

  • Teresa

    Too bad that the passengers caved in and paid the fees. I see 3 avenues of attack on this one:

    (1) In section 2.4 the contract speaks of if a “credit card company or bank refuses to settle the claim arising from the contract for reasons that are the customer’s responsibility”. I’m not sure the reasons were the customer’s responsibility here. Problems with international credit-card authorizations are on the increase (well-known examples: Skype and the Swedish rail web site) and customers frequently have no ability to understand why a transaction is being declined or to massage it through by talking to a real person.

    (2) Section 5.1.3 applies to situations where “a long-haul flight (the great circle distance between departure point and destination being at least 3,000 miles) booked as a saver fare is not taken or is cancelled” — but I submit that this flight was not cancelled because it was never booked in the first place. He didn’t pay for it, so he didn’t book it. More legalistically, the contract, hence the booking is not final until consideration has been presented and accepted — wouldn’t you agree? This was also an issue on the previous Air Berlin case.

    (3) Air Berlin’s time to notification was too long. Customers tend to believe that the transaction is complete when they see a message saying “Payment authorized” or “Your booking has been finalized” at the end of the booking process. Notifying the customer of problems within a couple days for a ticket some ways in the future seems reasonable, but a week or two or three does not. There seem to be some problems with Air Berlin’s style of notification, as well (see also the previous Air Berlin case).

    Section 2.4 of Air Berlin’s contract seems to give the airline authority to charge customers in case of a chargeback, which is wonderfully ironic. I am pretty sure that falls afoul of US credit card laws. Chargebacks are less common in Europe, of course.

    @MVG: Many people believe that US consulates can provide advice or help in these kinds of matters. The reality is that the US foreign service doesn’t have time for these kinds of private affairs. When in trouble, one imagines that the consulate will be a friendly and helpful voice, but actual contact with them tends to be very stiff and bureaucratic. The only thing they would do in this case is offer a probably not very carefully compiled list of local English-speaking attorneys that they keep on hand.

  • David

    The “next” passenger to experience this is a fool. If you fly Air Berlin, after being warned, you get what you deserve. Simple solution: Never, ever, ever fly Air Berlin.

  • http://www.cutcat.com ChelseaGirl

    Here is some info I found online: “Any company from any country can try to sue a United States citizen in American courts, but the U.S. government is only required to take those suits if the company is from a nation that has signed the Hague Convention. Another country can request to extradite an American citizen—move him to the foreign country for criminal proceedings—but the U.S. has no obligation to comply.”
    This is a civil matter so the extradition wouldn’t apply. I doubt that any European country is going to sue someone in a U.S. court over a debt, and even if they did, I doubt our government would get involved. I suppose the airline could hire a U.S. collection agency instead of a European one. But in any case I would not pay this debt; it’s bogus, and this airline is unethical.

  • noah

    Wow, I’m buying stock in AirBerlin. What a great business model — they get paid for refusing to provide a service.

  • Sebastian Poggel

    Where do they reside, in Germany or the U.S. ?

    If in germany, the process of collecting money is a hard way. There are ‘collection companies’ but they need a court order and appoint a law official (Gerichtsvollzieher) to collect money, or valued items in lieu, from people. This process takes forever but I should mention it adds up additional fees as well. You can counterclaim though but germany does not have a small claims court and you have to hire a lawyer, though the fees are very moderate as there is a fee schedule for legal services in germany. It would probably still exceed 500$ if you lose the claim because then you have to bear the court expenses and the other parties legal defense.

    If the customer resides in the U.S. I would not have paid the bogus fee in the first place. If they draw the case over and hire an american collection agency then I would pursue it in Small Claims Court and see what comes out of it.

  • Gary

    Noah hits the nail on the head. I see a big problem with Air Berlin’s terms. They create an incentive for Air Berlin to institute credit card processing systems which have a high failure rate but where the customer is not told of the failure until some time after completing the transaction. Air Berlin’s only notification method is to send a cancellation e-mail to the customer (which Air Berlin acknowledges might not even be received). After doing so Air Berlin then uses its contract to justify trying to collect (via an agency) a €10 fee per person plus the amount of the ticket from the customer, while at the same time reselling the same seat. I would hope that a judge anywhere in the world would be a little skeptical of an incentive structure like this.

  • larry

    To Clay, you’re comments are correct…. “Don’t fly Air Berlin” “reputable airlines don’t behave like this”. Problem is, Southwest does not fly everywhere.

  • Adam

    The victim’s best course of action may be to contact both the U.S. embassy in Berlin and his own congressperson and/or senators. If any of them are on relevant committees, like the Senate’s Commerce, Science, and Transportation Committee, they may have sufficient influence over a German bureaucrat or Air Berlin manager to get the charges refunded and even the reservation reinstated through a firm letter or staffer phone call.

    Alternatively, if the victim can receive written verification from his credit-card company that Air Berlin’s request for payment was never submitted, then the onus would probably be on the airline to prove otherwise in court.

    That the victim has already paid the $510 “fee” may actually bolster his chances of restitution. Now that he’s paid the bill, he has standing not just to challenge it but also to seek punitive damages in a lawsuit against the airline for violation of German or E.U. consumer law. If he’s really lucky, he can find others in his position and threaten a lucrative class-action suit. Even a settlement would bring in enough to fly on more reputable airlines for the rest of his life.

  • Texas Road Warrior

    Everyone seems to agree, except Noah :-), that Air Berlin is not going to win any airline of the year awards.

    I want to address the collection process which appears often in Elliot’s articles. In the United States collection agencies are known as third party collectors and a debtor, regardless if they owe the money or not, does not have to deal with them.

    We have a federal law known as the Fair Debt Collection Practices Act (FDCPA). It says that upon contact by a collection agency all a debtor has to do is write to the collection agency (send the letter by certified mail, return receipt requested. Very important, writing is required and certified mail provides the debtor a record that the collection agency received the letter) and inform them that the debt is in dispute and the debtor will only speak to the party who is owed the money and not to contact the debtor any further.

    Upon receipt of the letter the debtor has “fired” the collection agency and the collection agency may not contact the debtor any further. If the collection agency continues to contact the debtor the collection agency and the creditor who hired the collection agency are subject to a $12,000 fine for each attempted contact after the collection agency has received the cease & desist letter. Creditors are responsible for the actions of the collection agencies they hire.

    This is administered through the Federal Trade Commission and there is a place on the FTC website (FTC.gov) where one can report collection agency abuses. Also know that although collection agencies may threaten to sue debtors they may not file lawsuits to collect a debt that is not owed directly to them. The lawsuit has to be filed by the creditor who is owed the money and collection agencies are not creditors they are simply “hired guns”.

    My mantra is “Don’t talk to collection agencies and NEVER pay a collection agency”.

  • Carver

    @Texas

    You are mostly right. Those provisions only applies to third party collection agencies, i.e. a collection agency that has purchased the debt instruments. Like any law there are a slew of exceptions, most notably, if a collection agency is considered in-house with the initial lender, they can still call you.

  • Texas Road Warrior

    @Carver

    True, but if you don’t know they are “in-house” and they usually don’t inform you of their legal status then send the letter. My experience has been If they are not a collection agency by definition they will let you know right away. And if they are you won’t here from them anymore.

  • http://www.roamingtales.com Caitlin @ Roaming Tales

    >>His story underscores a fact few of us here in the United States seem to understand: No matter how bad airline fees are here, they’re worse in Europe.

    Not my experience.

  • http://www.cockam.com ajaynejr

    Just to let you know, you do not have to pay a collection agency just because it comes knocking on the door (or sends you a threatening letter). The collection agency, too, has to go to court before it is entitled to collect anything. And the collection agency, too, has to listen to any defense or dispute you may raise.

  • Carver

    @Caitlin

    Try rescheduling a flight in Europe. Its a best.

  • Eric

    WOW! So what’s next? You “fat-finger” your card number, causing the card to be declined. Then, since you entered your name and address during the booking process, you get a bill two months later demanding a $50 “Declination Fee”.

  • mavrekh

    The exact same thing is happening to me now.

    In June, I booked a flight from Krakow to Berlin on AirBerlin for myself and my wife (unfortunately, this was before I was able to read this story). They failed to charge my card twice, even after I sent them a fax with perfectly valid CC info. Then, they told me by email that the reservation would be canceled if I don’t “pay” by a certain date (this is still before the flight date). At that point, I decided to let it go and buy tickets elsewhere, as I wasn’t sure what else I could do to pay.

    When I returned to the US, I found a bill from AirBerlin waiting for me. Evidently, the reservation was not canceled, and they still expected the payment. I contacted AirBerlin customer service, but they refused to cancel the bill, citing the same part of their rules as above. A couple of days ago, I received a notice from an American collection agency for the amount of the tickets.

    I haven’t payed yet, and I’d be grateful for any realistic advice on what I can do in this situation. I have no experience suing in European courts, or suing anyone for that matter, but am willing to consider this option to stop this scam.

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