The Department of Transportation is in the early stages of investigating airlines’ frequent flyer programs and checking whether airlines have engaged in unfair or deceptive practices, Reuters first reported and the agency confirmed to TPG on Thursday.
In what appeared to be the early stages of an exploratory investigation, the DOT has been meeting with airline representatives in recent weeks to discuss various aspects of the programs, according to Reuters, while a DOT spokesperson confirmed in a statement that the airline ” actively meeting with U.S. airlines and gathering more information on this issue.”
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“We intend to carefully review complaints about loyalty programs and exercise our authority to investigate airlines for unfair and deceptive practices that harm travelers,” the statement said.
Among the topics the DOT is investigating with airlines are the transparency practices surrounding award ticket booking, along with aspects surrounding the devaluation of miles over time, the transferability of points and miles, and the nature of customer notification in making changes to the program, according to Reuters.
Frequent flyer programs have received increasing attention from federal lawmakers and agencies in recent months.
In October, Senate Judiciary Committee Chairman Dick Durbin (D-IL) and Senator Roger Marshall (R-KS) asked DOT and the Consumer Financial Protection Bureau (CFPB) to detail their enforcement actions amid ‘ disturbing reports that airlines are engaging in unfair practices’. , abusive and deceptive practices regarding these loyalty programs.”
“In practical terms, this means airlines can make changes to their points programs without notice to consumers, as long as the programs’ terms of service reserve the right to do so,” the senators wrote in a letter to the agencies. “As a result, these programs incentivize consumers to purchase goods and services, obtain credit cards, and spend money on those credit cards in exchange for promised rewards – while at the same time retaining the power to deprive consumers of those rewards at any time.”
The letter came about six weeks after Delta Air Lines announced changes to elite statuses in its SkyMiles frequent flyer program. These changes, some of which the airline partially reversed and others left in place, angered customers and underscored the unilateral control the airlines have over the programs, along with the few restrictions or legal statutes surrounding them.
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Many of the changes to Delta’s program were intended to reward those who spend more money and engage with the airline, especially heavy users of American Express’ co-branded credit cards.
“While these programs may have originated to incentivize and reward true ‘frequent flyers,’ they have evolved into co-branded credit cards and now often focus significantly or exclusively on the dollars spent using these co-branded credit cards.” branded credit cards,” Sens. Durbin and Marshall wrote in the October letter.
Durbin and Marshall, along with other lawmakers, have separately sponsored legislation that would affect the payment networks used by some credit card issuers. Airlines and issuers have lobbied against the legislation (as has The Points Guy, citing the possibility that rewards programs would be negatively affected by the proposed law).
Related: DOT fines Southwest up to $140 million over 2022 holiday crisis
Co-branded credit cards have become big business for airlines over the past decade, boosting the valuation of their frequent flyer programs and generating billions of dollars in annual revenue for the airlines.
During an earnings call in January, Delta said it added 8.5 million SkyMiles members to its registries in 2022. In 2020, the airline said it had 100 million members. The airline said in June that nearly 1% of U.S. GDP is spent on its co-branded credit cards.
In 2020, during the height of the COVID-19 pandemic, United used its MileagePlus loyalty program to secure a $5 billion loan, valuing the program at nearly $22 billion.
Delta and United declined to comment on the DOT initiative, while other airlines did not return TPG’s request for comment.