Summary
- US Department of Transportation is investigating potentially deceptive or unfair practices in frequent flyer programs, including transparency and devaluation of miles.
- Senators Durbin and Marshall argue that airlines can change points programs all at once, creating unfairness for consumers.
- Proposed laws to tackle Visa and Mastercard fees is being actively lobbied against by airlines, as they claim it might harm popular loyalty programs.
The US Department of Transportation (DOT) is analyzing the frequent flyer programs of US airlines, on the lookout for potential deceptive or unfair practices, Reuters reported on Thursday. This scrutiny comes months after two US senators asked the DOT and the Consumer Financial Protection Bureau about “troubling reports” within the frequent flyer and loyalty programs.
potential deceptive practices
The regulator is stepping up its airline industry oversight and on the lookout for potential deceptive and unfair practices throughout the frequent flyer programs.
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A few of these practices include transparency when booking award tickets and the devaluation of frequent flyer miles over time. In an announcement sent to Reuters, the DOT said,
Where does this come from?
On October 30, 2023, two US senators, Richard J. Durbin and Roger Marshall, sent a letter to the DOT and the Consumer Financial Protection Bureau asking what they’re doing to guard consumers against unfair and deceptive practices in airlines’ frequent flyer and loyalty programs.
The 2 senators claim that frequent flyer programs have evolved to incorporate co-branded bank cards as a substitute of their original purpose, which was to incentivize and reward true frequent flyers.
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The senators argued airlines could make changes to their points programs all at once to consumers. They incentivize consumers to buy goods and services, obtain bank cards, and spend on those bank cards in exchange for promised rewards – they wrote – all while having the facility to remove those rewards at any moment.
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Moreover, the senators argued that the disparity between the worth of points at purchase and redemption is extremely unfair to the consumers.
A bill airlines are lobbying against
Reuters reported that Durbin and Marshall are collaborating on a bill to tackle Visa and Mastercard fees. The proposed laws intends to reinforce competition by instructing the Federal Reserve to ensure that major banks issuing bank cards provide consumers with at the very least two networks for processing electronic credit transactions. The fees are typically about 2% of a transaction and are paid by consumers through higher prices by the retailers. Through co-branded bank cards, airlines are also paid every time the cards are used. For instance, Delta expects to earn $7 billion from its program with American Express in 2023.
Photo: Kevin Hackert | Shutterstock.
Nonetheless, in October, top executives of Delta Air Lines and United Airlines warned against this laws. Airlines are actively lobbying against the bill. They argued the proposal would wreck popular loyalty programs. In an interview with Bloomberg, Delta’s CEO, Ed Bastian, said cards could not receive the funding to give you the chance to take a position in rewards-back opportunities. Scott Kirby, United’s CEO, said this bill would kill reward programs.
What do you consider US airlines’ frequent flyer programs? Should they be modified? How? Tell us within the comments below.