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The DOT Defines Unfair and Deceptive Practices

The US Department of Transportation (“DOT”) has been regulating unfair and deceptive practices for a long time pursuant to 49 U.S.C. 41712(a) (“Section 41712(a)”). While there have been many specific regulations enacted under Section 41712(a) to address consumer protection (i.e., price advertising, long tarmac delays, refunds and involuntary denied boarding), much of the airline industry is regulated by the DOT’s determination of what is unfair or deceptive (i.e., frequent flyer programs, privacy, comparative advertising and relationships with influencers). Until recently, there was no definition of what constituted unfair and/or deceptive practices. This has made it difficult to advise clients concerning airline advertising and marketing strategies and policies. One might assume that something like Federal Trade Commission (“FTC”) precedent might apply, but one could never be sure.

Since the DOT has the authority to create guidance and bring enforcement actions based on its interpretation of the meaning of unfair and/or deceptive practices, the DOT had quite a bit of latitude. How the DOT manages its unfair and deceptive practices authority is important because the Airline Deregulation Act preempts State advertising and consumer protection laws. The DOT’s Section 41712(a) authority provides airlines with the boundaries under which they operate and the protections the consumer can expect. Not having a definition of what that authority entailed has made it more difficult for airlines and consumers.

The DOT recently enacted 14 CFR 399.79, effective January 6, 2021, which serves to define unfair and deceptive practices for air transportation. The DOT essentially adopted definitions that are based on FTC precedent. The new definition of “unfair” is based on the definition in the FTC Act and the definition of “deceptive” is based on a 1983 FTC Policy Statement. It is important that the DOT conform its definitions of “unfair” and “deceptive” to those of the FTC since the FTC and DOT have joint authority to regulate travel agencies.

Under the new 14 CFR 399.79(b)(1), 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.” Under 399.79(b)(2), 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.” It is important to note that proof of intent is not necessary to establish unfairness or deception for purposes of Section 41712(a). This does not mean, however, that lack of intent will not be considered as a mitigating factor in connection with an enforcement action. The new regulation also provides that where an existing regulation applies to the practice of an air carrier, foreign air carrier, or ticket agent, the terms of that regulation apply rather than the general definitions of unfair and deceptive. There was not much comment on this provision in the notice of proposed rulemaking (NPRM) or Final Rule, so it is not entirely clear what is required here. It is safe to assume that if an airline violates an existing regulation it cannot claim that it does not constitute an unfair or deceptive practice under the new regulation, but does it mean that if a carrier complies with the regulations concerning price advertising (i.e., 14 CFR 399.84), the airline cannot be found to have committed an unfair and/or deceptive practice in connection with a price advertisement? It remains to be seen.

The new definitions will be used for enforcement matters and for developing new regulations under the umbrella of Section 41712(a). The Final Rule that encompasses the new definitions of unfair and deceptive practices also includes regulation (at 14 CFR 399.74) concerning the rulemaking process for rules that are based on the DOT’s Section 41712(a), unfair and deceptive, authority. This regulation is not covered here. Part 399.79 does contain provisions concerning the conduct of informal and formal proceedings concerning matters involving a potential unfair or deceptive practice. In connection with the informal proceeding, the DOT must provide the alleged violator the opportunity to present evidence, including, but not limited to:

  • If specific regulation applies, “evidence tending to establish that the regulation at issue was not violated and, if applicable, that mitigating circumstances apply”;
  • If specific regulation does not apply, “evidence tending to establish that the conduct at issue was not unfair or deceptive as defined [in the new regulation]”; and
  • “Evidence tending to establish that consumer harm was limited, or that the air carrier, foreign air carrier, or ticket agent has taken steps to mitigate consumer harm.”

The regulation also requires that any enforcement order resulting from an informal proceeding concerning an alleged violation of Section 41712(a) that does not involve a specific regulation, articulate the basis for concluding that the practice is unfair or deceptive to consumers as defined in the new regulation.

Formal proceedings involving Section 41712(a) are subject to the administrative law provisions of 14 CFR 302.407 and 302.415.

The DOT indicates that the new definitions are not really new and that it has historically viewed unfair and deceptive practices through a similar lens. This has not always been transparent. Providing a definition for unfair and deceptive practices will enable practitioners to better advise their clients concerning airline policies and marketing strategies and will add a little more structure in the enforcement arena.