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DOT Proposes Reforms to Aviation Consumer Protection Authority

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In 1978, Congress enacted the Airline Deregulation Act, laying the basis for a greatly expanded, more competitive, and lower-priced airline industry. But in recent years, criticism has mounted over allegations that the Department of Transportation (DOT) has increasingly misused its authority to protect consumers from unfair or deceptive practices to subvert airline deregulation. Recent DOT rulemakings on airfare advertising, ticket refundability, and tarmac delays have been cited by critics as examples of a backdoor re-regulatory trend at DOT.

At the International Air Transport Association (IATA) Legal Symposium in New York on Feb. 20, Transportation Secretary Elaine Chao announced that DOT will propose a rule to update policies and procedure for its Aviation Consumer Protection Authority, the term it uses for its statutory authority (under Section 41712 of Title 49 of the U.S. Code) to police unfair or deceptive practices.

This proposal would align DOT’s authority with a similar authority long held by the Federal Trade Commission, improving transparency and accountability for regulated entities, consumers, and regulators alike. It would also make it more difficult for regulators to use a nebulous statutory authority as a chisel to chip away at the successful reforms that eliminated most economic regulation of air carriers.

What is now known as the Aviation Consumer Protection Authority long predates the department itself. The authority was created as Section 411 of the Civil Aeronautics Act of 1938 and was originally and exclusively wielded by the Civil Aeronautics Authority. Section 411 was modeled on the “unfair or deceptive acts or practices” language included months before in the Federal Trade Commission Act of 1938, which covered most other commercial contexts. The authority was soon transferred to the new Civil Aeronautics Board (CAB) in 1940, which was created by merging the Civil Aeronautics Authority and the Air Safety Board. In 1952, Congress expanded Section 411 to cover not only air transportation itself, but the sale of air transportation. For the next three decades, the enforcement against unfair or deceptive practices in the airline and ticket agent businesses by the Civil Aeronautics Board remained the same.

When Congress passed the Airline Deregulation Act in 1978, it eliminated most economic regulation in the aviation sector and wound down the CAB. When the CAB was terminated in 1985, Section 411 authority was transferred to DOT’s Office of the Secretary. In 1994, Congress reorganized the Transportation Code, and Section 411 was recodified as Section 41712. While reorganizing the Transportation Code, Congress was also working to modernize authorities held by the Federal Trade Commission (FTC). The FTC Act amendments of 1994, among other things, codified longstanding internal FTC policy in dealing with claims of unfair or deceptive acts or practices and a growing body of case law.

Specifically, two necessary standards of proof to the broad statutory prohibition on unfair or deceptive acts and practices were added at Section 45(n), Title 15 of the U.S. Code. The first requires that in order for conduct to be qualify as unfair or deceptive it must be “likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves.” The second requires that conduct “not [be] outweighed by countervailing benefits to consumers or to competition.”

These reforms were made at a time when Democrats controlled both chambers of Congress and the White House, and they earned bipartisan support. Similar language was included in the Dodd-Frank Act of 2010 covering the enforcement responsibilities of the Consumer Financial Protection Bureau, also when the federal government was fully controlled by Democrats. Unfortunately, while bipartisan recognition of this problem exists in virtually every other consumer protection context, Congress to date has not taken up reform to DOT’s similar Section 41712 Aviation Consumer Protection Authority. This failure to act enabled regulators in recent years to engage in a variety of re-regulatory activities, from new restrictions on airfare advertising to outlawing true nonrefundable ticketing to an inflexible tarmac delay rule suspected of increasing flight cancellations. All of these new consumer protection regulations have been criticized as perversely harming consumers, but without the FTC-style standards of proof, the scales were tipped in favor of the regulators.

The Department of Transportation’s proposal would add comparable standards of proof to Section 41712 enforcement and rulemaking while also codifying internal agency procedures for allowing alleged violators to present evidence defending themselves against possible enforcement or rulemaking activity derived from DOT’s aviation consumer protection authority. Certainly, this will improve airline and ticket agents’ defensive positions at the Department and in court, but it will also require bureaucrats to clearly explain themselves along the way and give consumers better insight into how decisions are made.

To be sure, it would be better for Congress to amend the statute to ensure DOT’s latest “rule on rules” isn’t discarded by future regulators. But Secretary Chao’s proposal is a positive step toward evidence-based consumer protection and safeguarding the large consumer gains from airline deregulation.

Originally published at Reason Foundations Aviation Policy Newsletter.