Federal government wraps up quiet year for traveler protections

Government fines against airlines for consumer rule violations are on track to hit a six-year low as the U.S. Department of Transportation’s enforcement actions shift from punishment to preventing infractions. With only a few weeks left in 2014, the DOT has issued 23 consent orders that assess $2.6 million in penalties — $4.5 million less than last year. That’s the same number as in 2009.

But the federal government’s consumer protection efforts haven’t stalled, according to Transportation Secretary Anthony Foxx. “We will continue to engage the industry to make sure that it plays by the rules,” he said.

The airline fines are the highlight of a quiet year, in terms of government enforcement actions. Other agencies, notably the Federal Trade Commission, took aim at deceptive travel clubs but left at least one major issue unresolved. All told, it looks as though this year will be one of the least eventful in terms of protecting travelers, at least on the regulatory side. But that doesn’t mean consumers are worse off.

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The FTC’s signature consumer protections revolved around travel clubs, which are often fraudulent products sold in a deceptive way. In July, the agency clamped down on one scheme to lure travelers into paying hefty upfront fees for a timeshare resale service. The club falsely claimed it had prospective buyers for properties it wanted to sell. And in October the FTC reached a $125 million settlement with the operators of a bogus trade association, called the Independent Association of Businesses, which sold travel services and insurance.

The FTC left the issue of mandatory resort fees being added to the price of a hotel room unresolved this year. In late 2012 the agency sent warning letters to 22 hotel operators that their online reservation sites might violate the law by offering a misleadingly low estimate of their hotel rooms’ cost. Agency-watchers predicted that that would result in the end of hotel fees, but the FTC now says it just wanted the fees to be disclosed upfront. Mary Engle, director of the agency’s Division of Advertising Practices, said, “It’s not upfront to lure people in with a low price and then tack on hidden fees.”

If nothing else, the FTC’s enforcement actions make travelers aware of their rights, consumer advocate Mitch Lipka says. Travelers “don’t always do what advocates hope they will, but the agency does raise red flags for consumers.”

The DOT’s Office of Aviation Enforcement and Proceedings, which enforces airline regulations, spent the last six years putting big numbers on the board when it comes to fines. Total DOT fines rose from $2.6 million in 2009 to $3.7 million in 2010 and climbed to $4.1 million in 2012 and $7.1 million last year, a record.

But last year, the transportation secretary signaled a change in course, from a punitive to preventive enforcement. That resulted in much lower fines this year. Instead of writing lots of tickets, the agency spent more energy on a making a rule that could give passengers more rights, and on what it calls “outreach.”

For example, in May the agency issued a notice of proposed rulemaking — the first step toward creating a regulation — designed to increase consumer protection for airline passengers. At the center of the proposal is a requirement that airlines and ticket agents reveal fees for a first and second checked bag, a carry-on item and the option to choose seats in advance.

In July, the DOT also expanded its rule mandating reports of death, injury or loss of animals during air transport to cover more airlines. And by the end of the year, the agency expects to issue a rule that will let passengers traveling with a musical instrument to bring the instrument as carry-on or checked baggage without “unreasonable” surcharges.

The government fines are modest compared with those in the past. There’s a $500,000 consent order against Asiana Airlines for multiple failures to accommodate the family members of passengers after the July 6 crash of Asiana Flight 214 in San Francisco. And there’s a $100,000 fine against Delta Air Lines and a $200,000 fine against Southwest Airlines for failing to disclose a total air fare in advertisements.

The DOT says its work happened out of the public view. It hosted forums on issues affecting air travelers with disabilities and meetings that brought airline representatives and professional musicians together to resolve the problems of passengers who fly with instruments.

For some, the government’s collective actions come as a disappointment. The fines were low to begin with — just a fraction of the airline industry’s $200 billion in annual revenue. Now, they are all but gone. “DOT negotiates all fines into consent orders with the airline admitting no wrongdoing and hardly ever providing any compensation to wronged passengers,” says Paul Hudson, president of FlyersRights.org. “Airline regulation is broken.”

Kevin Mitchell, founder of the Business Travel Coalition, which advocates for corporate travelers, says that lowering fines sends the wrong message, both to airlines and fliers. Thanks to federal preemption, which limits a passenger’s ability to sue an airline, fliers rely on the DOT to enforce the rules.

“DOT enforcement has never been more critical,” he adds. “Industry consolidation has resulted in four mega-airlines, which dominate the market, down from 10 major airlines 12 years ago.”

Other industry-watchers are hopeful.

“It is too soon to know whether DOT’s new approach, which places the emphasis on preventing infractions over fining them, is working or truly protecting the interests of airline passengers,” says Brandon Macsata, the executive director of the Association for Airline Passenger Rights.

He points out that the agency’s own data on complaints suggest the initial reaction isn’t positive. So far this year, the number of consumer complaints for airlines has increased from 10,444 to 12,350. No such comparable data exist for other travel industry sectors. Macsata says he hopes the new mandate isn’t an excuse to “abdicate its enforcement responsibilities — especially at a time when the aviation industry continues to undergo such dramatic changes.”

Perhaps the real danger isn’t the inaction of regulators but the actions of the legislative branch. With a Republican majority in the House and Senate come January, consumer advocates fear 2015 won’t just be light on fines, but heavy on rolling back some of the few regulations that protect travelers. Among the likely targets: the upcoming Federal Aviation Administration reauthorization bill, which airline lobbyists could hijack to eviscerate airline consumer protections.

We’ll see.

Did the government fine travel companies enough in 2014?

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14 thoughts on “Federal government wraps up quiet year for traveler protections

  1. The emphasis should be in making air travel more humane. Fining a carrier does not accomplish that. Making them have a duty to care (providing food and lodging) for passengers affected by late or cancelled flights regardless of the reason does. Requiring all airlines to work together to come up with an endorsement plan during IROPs does. These two are more important than cash compensation. I am sure we can think of other reasonable requests.

  2. I don’t think we want or should even suggest that it is set (as what appears in the post) to implied that it’s a goal of having fines imposed or collected be measured against the industry size or profitability… or worse, to measure success or failure by a fines expressed as a percentage of revenue basis.

    As far as negotiation goes, I think you can’t have it both ways when it comes to either civil or criminal matters.. If you want it as “the fine must be X” and remove any judicial discretion — taking the hard line if you will — then that’s what we should apply across the spectrum — that might be no more traffic fines being lowered or mitigated down by a judge due to past good driving records – if you’re found guilt, you pay the full boat.

    I think you have to measure each year against what it was – and no two years are or will be the same.. the industry changes, and as such enforcement should change as well.. be that how, what, where, when or even why it’s done.

    As to the notion that proactive enforcement works or not goes.. I think you need both — proactive enforcement has it’s place.. and I do think in some (not all but some) cases that will take care of the issue… but there is also a place for civil or criminal enforcement too..

    I think at the end of the day, we’re all better off if we try proactive first.. but must be willing to go down the road of enforcement -with “bite” – if that doesn’t work, or one or more parties just doesn’t participate as the law requires.

  3. I respectfully disagree. While there may be a minimum standard below which conditions are inhumane (and which ought to be prohibited by law), I think most of the complaints to which you refer relate to the degree of comfort (or should I say, the degree of discomfort?). It is not for government to decide where the balance lies between comfort and cost; that’s the role for the consumer. If a business does not elect to provide a comfortable and otherwise effective service for its customers, then those customers can, and should, do something else.

    (I do agree that fines are largely ineffective, as they are usually perceived only as a cost of doing business.)

  4. When they refer to fines they really mean fining passengers we end up paying the cost of those fines as increased fees and fares. I wouldn’t be surprised if an airline just adds a new “Transportation Enforcement” fee to airfares, literally passing on the cost of fines to us.

  5. What I perceive to be the government’s most important role is to make sure that there is adequate disclosure so that people can make effective decisions. To that end, I don’t think the government has done enough to curb deception, and it should pursue such items as so-called “resort fees.” Many businesses (not just hotels, but also utilities) want to confuse consumers on the distinctions between “fees” and “taxes.” We’re all used to having prices shown without government-imposed taxes, and most have accepted that it is O.K. for a uniform government-imposed tax be added to the price paid to a merchant, who then remits the tax payment to the government. But a “fee” is not a tax, and does not go the government. It is an amount determined by, and retained by, the merchant. Many times such fees are cleverly labeled as a “tax recovery fee,” leading consumers to believe that the fee is a tax, when in fact the fee is simply a charge made by the merchant so that merchant can earn additional revenue from which it can pay its own taxes. While it is legitimate that a truly-optional service (e.g., parking at a hotel) can–and should–be separately stated and charged, so long as the purchaser can decline to purchase that optional service. But mandatory fees (including “resort fees”) are not really “fees”; they are part of the purchase price of the service. And when the price of a service is advertised, it is deceptive not to advertise the full price, including mandatory fees. I think this is one of the most important issues for the government to pursue, in the area of travel regulation and enforcement, in the coming year.

  6. I respectfully disagree. I would agree that comfort levels should not be mandated by law. But the situation that Tony points out relates to irregular operations. Efficient market forces require a reasonably free flow of information so that the reasonably prudent person can became educated and make an informed choice.

    Airline CoC’s are long, dense, and subject to change. It is unreasonable to proceed from a perspective which requires such knowledge by passengers. It’s the same reason why lending is so regulated. It’s unreasonable, even fanciful, to expect the average borrow to be able to educate himself on the nuances of a bank loan. That’s why there are consumer protection laws.

    Consider, you and I are attorneys. When was the last time you read the CoC for your flight? Contrast that with seat width and pitch. That’s easily to understand. 2 minutes of the internet is sufficient to educate oneself.

    Also, airlines are in a better position to mitigate the risk, which is of course par and parcel for an efficient market. Imagine getting stuck in New York during a layover. Paying for a hotel would be prohibitive for many people. Or suppose there are no restaurants open in the airport. Where do you get food? Placing that burden on passengers would be inefficient, the bane of the free market.

    That’s why consumer protection is appropriate in this case.

  7. If fines aren’t measured against industry size or profitability how do they have a deterrent effect? On more than one occasion, I’ve parked illegally because I was running late for court. I didn’t have change for the meter. The $30 fine was nothing compared to having the judge yell at me for being late.

  8. In that example I’d agree.. but for me the larger issues are these: a) do we want fines for the same crime/infraction to the be the same for each person or are we more comfortable with a sliding scale – such a parking fine is .005% of your AGI.. DWI/DUI is 1.25% of AGI…

    I do see some value in that because what is truly a “penalty” for one person may not be seen or felt as a “penalty” to someone else..

    If want to do a personalized-penalty model, then perhaps we need to revisit incarceration — as I’m sure some people would prefer incarceration as opposed to something like mandatory work programs.. Point is, why not make all, or the majority of penalties customized?

    For me, I don’t want to go down that road.. I think there’s a way that we as a larger society can get some of that personalization without turning the penalty part into a free-for-all sentencing model — use aggravating factors — like some places do.. Commit a robbery it’s X, but do so with a firearm and now it’s an X+ crime.

    Lastly, I do not think it is a good idea — at all — to based or use as any measurement of “success” — the number of infractions, fines collected or similar measurements to say “We’ve done good this year” or not.

    This is, to me, the old cop-ticket-quota story just retold.

  9. Some very good points. My take

    With regards to the traffic fine example, traffic fines are sufficient to deter most people from committing violations if they believe that they will be caught. Certain fines such as parking in a handicapp area are large enough to deter most people, even if they think it unlikely that they’ll be caught. Thus, static fines are sufficient.

    However, fines for large business cannot work that way. There is no way to create a single fine that would be large enough to punish/deter one business without being crippling to a smaller one. That’s why we have the concept of punitive damages. Punitive damages are damages which, unlike compensatory damages, are individualized to deter and punish bad actors.

    The reason why static fines work on individuals and not on business is that most peoples incomes fall within a relatively narrow band compared to businesses.

    I’m not familiar with any mandatory work programs. In California at least, they do not exist. Work release, as we call it, is a sentencing alternative where the defendant is permitted to work through the Sheriff’s department in lieu of serving time. The defendant can always elect to cool his heels in jail instead.

    I agree wholeheartedly that the amount of fines by itself is a particularly poor metric. It lacks context and thus is meaningless. I was not clear before. We would need a breakdown of the violations. Suppose the number and nature of violations decreased? Then logically the amount of fines should decrease as well.

  10. I think that you’re really saying the same thing, the only difference might be where the line exists between “humane” and “inhumane.” I’ve often said that one of the biggest distinctions between companies is how they handle things when things go wrong. The company that goes above and beyond the minimal response offered by its competitor has, and should be able to benefit from, a better reputation. If air carriers do not advertise their reputations, it is only because air travelers have expressed a preference for cheap fares over their comfort. If all companies had to respond identically, then we would have government-controlled reputations to choose one company over another.

    (I’m not the best person to ask about contracts of carriage. While I no longer fly commercially, I do travel by bus, railroad, and sea, and will assist others with air transport on request. Even since I was an undergraduate, I have been fascinated with tariffs, and I do regularly read them. But I’m the exception, not the rule. People have a right to expect humane treatment. Beyond that, they should be able to differentiate between carriers. Whether it is through carrier advertising, or just the few passengers reading the contracts of carriage, carriers should be permitted to offer their passengers anything that is humane and consistent with law, both regulatory and contract.)

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