Saying it wants to protect consumers from unfair, deceptive or anticompetitive practices, the Transportation Department on Sept. 5 launched an investigation into the rewards programs operated by the nation’s four largest airlines.

As part of that probe, Transportation Secretary Pete Buttigieg sent the four airlines letters ordering them to provide records and submit reports about the operation of their programs. The DOT said the probe is focused on ways consumers participating in airline rewards programs are impacted by the devaluation of earned rewards, hidden or dynamic pricing, extra fees, and reduced competition and choice.

“Our goal is to ensure consumers are getting the value that was promised to them, which means validating that these programs are transparent and fair,” Buttigieg said.

The probe follows a May DOT-CFPB public hearing that we blogged about here. Officials from smaller airlines and representatives of financial institutions and consumer groups testified during that session.

In announcing the investigation, DOT officials said that many airlines reserve the right to change the terms and therefore the values of the rewards at their discretion. DOT officials also asserted that they have the authority to investigate and take action against airlines for unfair or deceptive practices and unfair methods of competition in air transportation, as well as the sale of airline flights.

Specifically, DOT officials said they are investigating allegations concerning:

• Devaluation of earned rewards. The DOT said that airlines may apply changes retroactively to rewards that customers already earned. Those changes may reduce or eliminate accured value. “When earned value disappears before it can be redeemed, customers have little recourse to reclaim it from the airline,” according to the DOT. For that reason, the DOT is asking the airlines about changes that have been made to their rewards programs during the past six years, how it impacted existing points and any options members were provided.
• Hidden and dynamic pricing. DOT officials also said that when the true dollar value of rewards are hidden, it becomes easier for airlines to devalue those rewards. Accordingly, the DOT is asking airlines for “the average dollar value of one reward point, the value of a point when it is redeemed for various services, and the price to purchase a point directly from the airline.” The DOT is also asking airlines to identify practices related to dynamic pricing and the financial impact of those practices on consumers.” 
• Extra fees. The DOT alleged that airlines often add extra fees for passengers to maintain, redeem, or transfer points they have earned. In that regard, the DOT is asking airlines to identify and describe each fee related to the use or administration of their rewards points, the actual cost to the airline for a consumer to take the action for which they are charged a fee, and the rationale for charging the fee.
• Reduction in competition and choice. Mergers between airlines can present problems for consumers that have reward points, the DOT said.  Consequently, the DOT is asking airlines to describe and provide documents related to their mergers involving rewards programs, the integration process of merging programs, their rewards program partnerships, and how they monitor, analyze, and/or react to other airlines’ competing rewards program.

Following the DOT announcement, CFPB Director Rohit Chopra directly linked the reward fee probe to partnerships between airlines and credit card companies.

 “Airline valuations are increasingly driven by their points programs and lucrative partnerships with credit card companies, and Americans are paying high interest rates and fees to participate in these programs—yet these tempting points and rewards programs are often depreciated or changed with little notice,” Chopra charged.

In March, President Biden announced an administration-wide effort to tackle “exploitative practices with branded credit cards, points and miles.”

In a fact sheet, the administration said, “Branded retailer and airline credit cards too often rely on late fee revenue and adopt other questionable practices, like devaluing points and miles and luring in consumers with misleading deferred interest products that cause charges later.”

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