New DOT Rulemaking Goes Off the Rails on Refundsby Paul Ruden /
In my long career dealing with the regulatory side of the travel industry, I have never seen anything quite like the latest proposed regulations from the Department of Transportation regarding ticket refunds. At the outset, I caution that this report is just a brief summary of a few of the many issues raised by the rulemaking as they affect travel advisors. I will focus on the refund provisions related to airline actuated “significant changes” in itineraries of booked flights, leaving for another day the other major set of issues related to refunds for travel otherwise affected by a “serious communicable disease” and which consumers themselves elect not to take or are barred from taking.
The most puzzling aspect of this proposed rulemaking is the claim that it is based on DOT’s sweeping and unqualified “longstanding interpretation that it is an unfair business practice for a … a ticket agent to refuse to provide requested refunds to consumers when a carrier has canceled or made a “significant change” to a scheduled flight to, from, or within the United States, and consumers found the alternative transportation offered by the carrier or the ticket agent to be unacceptable.” The covered problems include not only outright flight cancellation but also
“significant changes to the quality of the air travel specified in the itinerary.”
The proposal is focused on the “unfair component” of 49 U.S.C. § 41712, the DOT’s statutory unfair and deceptive practices authority. Under the Department’s rules, 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. Proof of intent is not necessary to establish unfairness.
Thus, DOT says “It is not sufficient for carriers or ticket agents to only offer vouchers to passengers instead of the money paid for a service the airline did not provide.” It further notes that it has asserted “for decades” that the prohibition against unfair practices means airlines cannot refuse to refund non-refundable tickets when the carrier cancels or makes a significant change to a flight. Refusing such refunds is not just unfair but is “grossly unfair” and “manifestly unfair.” DOT claims, however, to be merely clarifying the situations in which a refund is due while not imposing additional requirements on carriers.
That may or may not be accurate, but what certainly is accurate is that the NPRM aims to impose significant additional requirements on travel advisors. I will explain.
In early 2020, at the beginning of the pandemic, when demand for air travel was collapsing and flight cancellations were raging throughout the system, DOT received an unprecedented number of consumer complaints about cash refunds being refused and vouchers proving unusable. In response, on April 3, 2020, DOT issued its first pandemic-related Enforcement Notice, reminding the airlines that “Carriers have a longstanding obligation to provide a prompt refund to a ticketed passenger when the carrier cancels the passenger’s flight or makes a significant change in the flight schedule and the passenger chooses not to accept the alternative offered by the carrier.”
That Notice made no reference whatsoever to ticket agents, the legal term for travel advisor in the Federal Aviation Act.
The airlines’ response, it’s fair to say, was indifferent. Thus, on May 12, 2020, in the face of a continuing onslaught of consumer complaints, DOT issued a second notice, entitled Frequently Asked Questions Regarding Airline Ticket Refunds Given The Unprecedented Impact Of The Covid-19 Public Health Emergency On Air Travel. Curiously, DOT went out of its way to qualify what it was saying,
To the extent this notice includes guidance on how regulated entities may comply with existing regulations, it does not have the force and effect of law and is not meant to bind the regulated entities in any way. Regulated entities may rely on this document as a safeguard from Departmental enforcement as described herein.
The notice went on to address the obligations of travel advisors in language perhaps affected by the stunning crisis that was besieging the entire country [my notes are in brackets; italics for emphasis are also mine]:
What rights do passengers have if they purchased their airline ticket from an online travel agency?
Ticket agents [unqualified] are required to make “proper” refunds when service cannot be performed as contracted on a flight to, within, or from the United States. The Department interprets the requirement for ticket agents to provide “proper” refunds to include providing refunds in any instance when the following conditions are met: (i) an airline cancels or significantly changes a flight, (ii) an airline acknowledges that a consumer is entitled to a refund, and (iii) passenger funds are possessed by a ticket agent. In enforcing the requirement for ticket agents to make “proper” refunds, the Aviation Enforcement Office will focus on the totality of the circumstances.
Note also that the term “proper refunds” is also used in the DOT Policy Statements, 14 CFR 399.80(l) also cited by DOT as authority for the obligations it was imposing on advisors. Thus, “proper refunds,” based on long-standing interpretation, refer to situations in which the advisor possesses the funds when the refund request is made.
The NPRM throws that concept out the window:
The Department is proposing to require that ticket agents provide prompt refunds of airline ticket purchase prices or the air transportation portion of tour packages when an airline cancels or significantly changes a scheduled flight itinerary that the ticket agents sold directly to consumers, regardless of whether the ticket agent is in possession of the ticket purchase funds. [Bolding mine]
The rationale for undoing the policy that DOT says has been in place since the 1960s is that “approximately 17% of the 105,327 refund complaints the Department received between January 1, 2020, and June 30, 2021, are against travel agents and tour operators.” Thus, “The Department views this significant volume of refund complaints against ticket agents as an indicator that strengthening protections for consumers purchasing air transportation,” without spelling out the exact nature of the complaints or what led to them.
DOT rejected the idea of continuing to put the refund burden on the entity holding the money because consumers would not necessarily know who had the money when they sought a refund. That uncertainty, it believed, ‘would result in additional costs, delay, and confusion to consumers.”
In my opinion, if DOT has no better understanding than that of the typical funds flows for airline ticket transactions settled overwhelmingly through the Airline Reporting Corporation, it should have issued an Advanced Notice of Proposed Rulemaking to find out how those processes work before proposing rules that impose burdensome and unmeetable legal obligations on thousands of travel advisors. Or, it could have just invited the relevant players into a meeting to discuss the processes involved.
The NPRM is replete with conflicting terminology and inconsistent terms such as, “from the consumer’s perspective, the ticket agent is the ultimate recipient of the funds irrespective of whether the ticket agent is in possession of the consumer funds at the time of the refund request.” The term “ultimate recipient” suggests an end-position in the financial chain, not the initial position typically occupied by travel advisors selling scheduled air transportation.
The news is not all bad. DOT did ask for comments on:
whether it is reasonable to place the refund obligation on the entity that is the recipient of the funds as identified on the passenger’s financial transaction record, without considering whether that entity is in possession of the consumer funds at the time the refund is requested. In relation to this question, the Department notes that, according to our understanding of the information provided by ticket agents, in most cases, consumer funds move quickly through the intermediary entities so the entity that is the ultimate recipient of the funds would most likely be in possession of the funds when a refund request is made. To better assess the appropriate ways to place obligations on different parties, the Department is also interested in obtaining information regarding common practices and timelines for ticket agents to settle accounts with airlines.
Numerous related questions about industry processes are mentioned as well. Here are just a few of them:
- What are the situations in which ticket agents’ involvement is necessary for airlines to issue refunds? What are the situations in which airlines need to remit the funds back to ticket agents instead of consumers?
- In those situations where the involvement of ticket agents is required, how can the Department’s regulation ensure that ticket agents use their best effort to facilitate the prompt issuance of the refunds by providing all the information necessary for refund issuance to airlines in a timely manner, and by remitting the funds returned from airlines back to consumers?
- Should the regulation place the burden of issuing refunds on both airlines, as the recipients of funds, and ticket agents, as the consumer-facing entity in those situations?
- The Department also seeks input on any innovative solutions that we may not have considered to ensure the consumer is not sent back and forth between the ticket agent and the airline trying to obtain airline ticket refunds.”
- whether the ticket agent’s obligation to provide a refund within 7 days for credit card payments and 20 days for cash and other payments should not start until the ticket agent receives refund eligibility confirmation from an airline when the agent is unable to independently confirm the passenger’s refund eligibility.
- If a ticket agent’s obligation does not start until the ticket agent receives confirmation from an airline, how can the Department ensure that the airline acts promptly and the passenger is refunded in a timely manner if entitled to a refund?”
A critical opportunity to redirect the rulemaking into more productive and viable paths exists. Persuading DOT from the proposed course is going to require a broad-based and powerful response from the retail industry. ASTA is, of course, on the case. ASTA needs and deserves full industry support. The feelings of understandably frustrated travelers should not be the only driving force behind the solution to what has been almost entirely an airline-driven problem.
To end this report on a somewhat positive note, the NPRM states that travel advisors may charge a service fee for booking travel or issuing refunds and to deduct those amounts from the refund provided to consumers if the amount of the fee is on a per-passenger basis and is “clearly and prominently” disclosed to consumers at the time they purchased the airfare. Advisors will want to give serious thought to how that will be accomplished.