Daily Memo: What Constitutes An ‘Unfair and Deceptive’ Practice?

generic US jet
Credit: FAA

The U.S. Transportation Department (DOT) finalized a new rule narrowing the criteria it uses to hold airlines accountable for “unfair and deceptive” business practices. 

Opinion is split over whether that was the right call.

The new rule traces back to February 2017, shortly after U.S. President Donald Trump took office. Among his first executive orders was E.O. 13777, which required each federal agency to establish a special task force to identify regulations that can be repealed, modified or replaced. 

Later that year, in response to a request for written input on the executive order, Airlines for America (A4A) urged the DOT to refine and clarify the standards it uses to take enforcement actions against carriers and ticket agents. The department concurred, officially setting off the multi-year rulemaking that wrapped up Nov. 28. 

The crux of A4A’s argument related to definitions. While the DOT holds exclusive authority to initiate enforcement actions and new rulemakings intended to correct harmful business practices in commercial aviation, it has—until recently—declined to codify a precise definition for the phrase “harmful and deceptive,” which is the standard it uses in such cases. Without a clear definition, the department has, at times, used the phrase as a catch-all to make new rules and take arbitrary actions against carriers, A4A argued.

DOT agreed. Its newly adopted standard—aligned with that used by the Federal Trade Commission (FTC) in similar cases—actually consists of a pair of three-pronged definitions. Firstly, the new rule defines a practice as unfair if it “causes or is likely to cause a substantial injury, which is not reasonably avoidable, and the harm is not outweighed by benefits to consumers or competition.” In addition to unfairness, a practice is considered deceptive if it “is likely to mislead a consumer acting reasonably under the circumstances with respect to a material issue.”

“This reform is a critical step forward in ensuring a data-driven regulatory process, which will produce widespread and lasting benefits for air travelers, airlines and the economy,” a spokesman for A4A said in a statement. “As the industry adapts to this new environment, it is more important now than ever to ensure greater transparency to provide airlines better information, in turn allowing carriers to offer greater choice to consumers.”

To be sure, the new rule change has its share of critics. In comments submitted to the agency, four Democratic senators strongly urged the department to abandon the effort, which they said would restrict its ability to hold carriers accountable in the future. While the proposed “unfair and deceptive” standard mirrors the definitions used by the FTC, the lawmakers argued that the DOT failed to consider key differences between the agencies that make copying the FTC’s approach inappropriate. 

For example, the FTC regulates a broad swath of industries that are also overseen by the individual states, whose attorneys general and competition bureaus serve as backstops to the agency and often take action when the federal government declines to. By contrast, because of the Airline Deregulation Act of 1978, only the DOT is empowered to regulate airlines. As such, the lawmakers, as well as a host of consumer groups, have argued that the DOT secretary must have additional discretion to regulate harmful business practices above and beyond the limitations adhered to by the FTC.

“We believe that mirroring the FTC’s definitions would needlessly narrow DOT’s consumer protection authority, undermining existing passenger protections and limiting your agency’s ability to hold airlines accountable,” the senators—including Edward Markey (D-Massachusetts), Richard Blumenthal (D-Connecticut), Tammy Baldwin (D-Wisconsin) and Maria Cantwell (D-Washington)—wrote.

The bottom line? To the extent that the revised definitions provide greater clarity and transparency for passengers and regulated entities alike, that can only be a good thing. However, for consumers and lawmakers who already feel that the DOT moves too slowly in correcting harmful practices by airlines and ticket agents, further narrowing the definitions could also have the side-effect of making it more difficult to police such actions in the future.

Ben Goldstein

Based in Boston, Ben covers advanced air mobility and is managing editor of Aviation Week Network’s AAM Report.