Airlines and Opting Ethics

Here’s a post with my co-author and colleague at Yale Law School, Jonathan Macey. Jon is the author of the just-published book Corporate Governance: Promises Kept, Promises Broken.

Airlines and Opting Ethics
By Ian Ayres and Jonathan Macey

Some airlines and travel sites are trying to goose their revenues by running a new opt-out insurance scam. As Tribune Media Services reports:

When Angela Gross buys a ticket through Frontier Airlines’ web site, it tacks on an extra $10.95 for travel insurance. How did it manage to do that? By having a [pre-]checked box on the booking screen that she had to opt out of. Now Frontier is balking at a refund.

If you’re not paying close attention while finishing your ticket-purchase transaction on the web, you may well be on the hook for an extra insurance fee.

Pre-checked boxes committing people to receive stuff unless they affirmatively opt out have been around for years. But until recently, failure to opt out just means that you are likely to receive spam because you have agreed to have your contact information shared with other vendors. Like most others, we have been caught asleep in the past only to find ourselves deluged with hordes of subsequent emails containing unwanted “special offers.” What’s new about the latest wave of opt outs is that very prominent retailers are brazenly adding services that will increase the upfront price of their services unless the customer affirmatively opts out.

We learned about these shenanigans first hand. About a month ago, Ian was checking in at an airline kiosk and was almost tricked into paying $75 for a coach seat with a little extra legroom.

The kiosk touch screen was designed with the standard “continue” button in the lower left-hand corner of the screen. But after hitting several “continues,” Ian landed on a screen with a button already set in the “accept” position. It took Ian a moment to figure out that he was about to agree to pay a $75 seating upgrade fee and then some additional time to find the by-no-means-obvious button on the screen that he had to click to avoid the upgrade — and the fee — and continue with his check in.

The upgrade at the kiosk did not involve a pre-checked box. But by putting the “accept” button in the lower left-hand place — where users had become accustomed to clicking, having just clicked there several times — the airline (diabolically) created an ingenious sort of positional opt out. To avoid the fee, the customer has to stop doing what she’d been doing and physically move her hand to another part of the screen.

Jon was the near-victim of the more explicit opt-out scam that involved more serious money. Shortly after reading about Angela Gross’s experience with Frontier Airlines, Jon happened to be using Orbitz.com to buy five airline tickets from New York to Paris for himself and his family. After buying the tickets and after logging out of Orbitz, Jon received an email from an insurance company purporting to thank him for buying … you guessed it … trip insurance!

By not noticing that Orbitz had used a pre-checked box, Jon had “agreed” (by failing to disagree) to a whopping $156.90 trip insurance addition to his airline ticket price, taxes, and airport fees. The fun really started for Jon when he went into fast forward to set the matter right. It turns out that even though customers can go back and electronically cancel the airline tickets that Orbitz sells, customers cannot cancel the insurance that Orbitz sells through the website where it was brought. In fact, the insurance could not be canceled through Orbitz at all, but only by contacting the insurance vendor Access America directly by phone.

When Jon reached the insurance company, he learned that the insurance was only refundable if the policy is canceled within 10 days of “purchasing” the policy (i.e. after most people received their credit card statements for the purchased tickets, and after many customers had already gone on their trips, thereby “using” the insurance!). In order to cancel, Jon was required to listen to a pre-recorded message informing him of nothing (other than that the company was trying to raise the transaction costs associated with canceling their insurance).

When Jon complained to Orbitz, the company sent him the following response:

INSERT DESCRIPTION

It’s refreshing to receive a form letter that says “I understand … you are not happy.” But the message misrepresented how Orbitz’s website actually functions. The OrbitzTLC team’s message asserted that travel insurance was added to Jon’s reservation because he manually checked the box “Yes, Add Airline Ticket Protector for USD …” In other words, Orbitz erroneously claimed that its program required a customer to opt in to it. In fact, the program required Jon to affirmatively opt out of the program in order to avoid “buying” the insurance.

To make sure, we went back on Orbitz.com and found that, consistent with Jon’s recollection, the travel insurance option, unlike numerous other options on the website is pre-checked, comme ça:

INSERT DESCRIPTION

In some ways, all’s well that ends well. Access America did finally refund Jon’s money. And a very nice and knowledgeable Orbitz employee told Jon that the travel insurance is only opt out for foreign flights and tourist packages.

But the episode raises troubling issues:

What’s to stop retailers from pre-checking a $300 or $3,000 charge for trip insurance, or pre-checking a life-insurance policy in case the plane crashes?

What does the trip insurance actually give you that you don’t already have? The Access America policy is incredibly narrow in scope — basically only covering you if you get ill or die because of an unexpected event (no pre-existing conditions). We’re betting that many airlines would give you a refund under such circumstances, even without buying the insurance. Other insurance companies do offer insurance that includes coverage for pre-existing conditions.

What happens to people who don’t learn of the coverage until after the 10-day cancellation period has run? (Jon was told that Orbitz might work with the vendor to persuade it to cancel the insurance protection under certain conditions, but that: 1) the decision to cancel and refund was up to the insurance company, not Orbitz; and 2) if the trip was completed no refund would be allowed.

How many needless cancellation hoops (making six rather than one call, listening to a 20-minute message, submitting an affidavit) can be imposed as preconditions to cancellation?

We’re particularly concerned that Orbitz sent Jon an email that inaccurately described this program as an opt-in rather than as an opt-out program. We assume that this misrepresentation by Orbitz was inadvertent and will be corrected. Jon was told by the Orbitz representative who called him that the earlier Orbitz email was incorrect and that the issue had been passed along to “management.”

But the 800-pound gorilla in the room is the opt-out scam that began this entire travail. In their recent best-selling book Nudge, Cass Sunstein and Richard Thaler show that default setting can be a powerful force for the social good. But default setting can also be a powerful force for mischief if controlled by those with ill intent.

We wonder whether the fact that opt outs were only recently introduced in the travel industry — and only after Nudge was published — is merely coincidental. Perhaps the insights in the book provided valuable, if unscrupulous, tips to the marketers who help design websites for the travel agency.

As lawyers and economists, we would have predicted that reputational sanctions would have kept Orbitz from engaging in these sorts of shenanigans. Experience, however, is proving us wrong.

Particularly troubling is the fact that Orbitz must know what it is doing, because it sometimes uses opt-in marketing strategies, and it sometimes uses opt-out marketing strategies. It seems to us that there must be a reason for this.

If other retailers follow suit, this might be a place where a light legal intervention is called for. We, of course, would allow consumers to buy trip insurance or any other add-on service they really want. But it might be wise to require that any add-on services that add to the advertised price be offered solely on an opt-in basis.


RNB

That oft-quoted utopia where the bad-guys will "in the long run" go out of business when enough customers vote with their feet (or clicks) is not only unrealistic but downright dangerous for economic policy - it assumes a world where all corporations are in business for long enough for all customers to be sufficiently well informed. That doesn't happen. Managers of corporations stay long enough to earn life-affirming bonuses and stock options, the company could then go bust and there'd just be many others willing to take its place in the market.

ktb

@#11 - Just because something is legal doesn't make it ethical. Similarly, just because it's common doesn't mean it's ethical either.

SMJ

Reminds me of a story I read a couple of years ago about Orbitz ripping someone off.

www.thebestpageintheuniverse.net/c.cgi?u=orbitz_blows

Chris Dickey

I do not defend the practice, however are we all in such a hurry that we cannot be bothered to read a few paragraphs of text to make sure what we are buying.

Kirilius

@11 - people dealing drugs also want to make money. Since when the desire to make money can justify ANY type of behavior?

The default opt-in practice is not limited to just travel industry. It drives me crazy because I am forced to read tens of lines of fine print crap every time I sign up for a new service or purchase something more expensive. I don't want to feel like a hunted animal but I am forced to. Luckily I have use the Internet long enough to know that "checkbox = choice" but this does not make the situation better.

Here in Canada I have seen the same thing done by virtually every service provider I have dealt with.
* The folks at Bell for example (who certainly are in the business of making money) create some very complex service plans so that if you sign up for a basic service, you will discover that after 6 months a special "feature" is magically activated and you start paying 5$ extra for something you never asked for. This happened to me and the most interesting thing was that I signed up for the service on the phone. I told them I needed the cheapest ground line with no extra features. So I did not even leave a box checked or had a fine print to read!
* It was the same with my cell phone and Rogers. This time however I had written contract (with lots of fine print to read), so when the "magic" three months were over I called them and asked them not to activate the "special" feature.
* When you call a bank to activate a credit card, you are asked in a very innocent and casual manner if you agree to be insured against you-name-it. The call center employees are trained to ask that question as if they are asking you "how are you" and this is a part of the activation process.
* Dell (already mentioned above) take the liberty to choose some components (not the cheapest ones) for you as well.

Also coming from Europe, the practice of posting a price without including the sales tax in both US and Canada, looks to me like another way of hiding a cost, in other words - scam!

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Kimota94

I'm with the people who say it's really up to all of us to read the contracts we agree to, whether they're on paper or in pixels on the screen. If these check boxes weren't actually being displayed in the process, then I'd be on-side with getting out the torches and pitchforks and storming the bastards' castle. But as it is... read what you're signing, people!

Lisa

Really people, if you just payed attention when you were buying something online there wouldn't be a problem.

Read anything before you sign it. And that counts double when you're giving someone your credit card.

NSK

This is no different than when the "Debit Card" box is automatically checked when you want to process a credit card transaction. At many merchants' web sites, even when I pick the "Credit Card" option, the Debit Card box comes automatically checked. I have to remember to uncheck it (each time) to ensure that my payment is not posted as a Debit Card transaction (on my credit card). I suspect the credit card company can then charge me a "cash advance" fee.

Rob

@25

The phrase "it's just business" simply means, "I did that nasty thing to you/them because it made me money." That apparently makes it ok.

Emmanuel M

At least in America, you get the option to make a class action.

Punitive damage for Orbitz might deter many nitpickers from trying this scam

Christian Bieck

Free enterprise does not mean everything unethical (but not illegal) is automatically ok. While I agree with the need to read what you are signing, business ethics do require the party writing the contract not to intentionally obscure the content or trick the other party.
In Germany, if the only objective of a sales process it to trick a customer (like in the airline kiosk example), it is per se invalid, i.e. there was no valid contract in the first place. Opt-out is not illegal in all cases, but the described ones quite likely would be.

Tom

Anyone who has seen the movie "Fargo" knows that Jerry Lundegaard was a master of the opt-out selling strategy. The auto industry has been using this strategy for selling add ons like undercoating for years.

So, the nudge boys are off the hook.

achilles3

I will never use Orbitz again just because of this post.
Call it a permanent opt-out.

Kirilius

Kimota94, of course you always have to read what you are signing. But many "businesses" these days are trying to make it harder and harder for you. Like the case I described will Bell. I called them and asked for the most basic ground line and explicitly said I did not want any features. There was nothing to read and no box to check. Still they tried to cheat me hoping that I would not notice the difference in the bill.
Similar to the example given with EasyJet, some car rental companies don't let you see the final amount before you actually confirm the booking! Sure, it is legal, but it is NOT ethical. And I make a point of not using the services of such companies. Usually I stop at the point when they ask me to confirm and I still don't see the final amount ton the screen.

John

This is not a new practice just a different delivery mechanism. Travel suppliers have been doing a variant of this for decades. Instead of having a check box that is pre-checked they added the travel insurance or other recommended services on the invoice. Those travelers that read their invoice could remove the additional charge and pay the balance without the recommended services just like today's travelers can read their computer screens and opt-out.

Same practice, just a different mechanism. The informed consumer should still read and understand what they are buying.

nancy

"Read anything before you sign it."

"the party writing the contract not to intentionally obscure the content or trick the other party."

I've read my lease. I've read user agreements. I've read utility agreements. I didn't read all my bank agreements because I needed an account really bad, like yesterday. I've got stuck with a couple hidden fees there. And in reading everything what choice does the last Mohican have? I didn't want to agree to some things. How do i survive without their services?

I would operate from a pile of cash in my living room if I could because i am business, economics, and jurisprudence impaired. (extremely retarded, if I am allowed to use that word.) Trouble is I can't. I have to have a bank account, because i have to pay my rent with a check. I have to submit to lots of things that i dont agree with just to not be homeless.

i am thinking of asking an Indian Reservation if I might take up residence on their land for just the tranquility with living as quietly and without the US legal system as possible, not because i want to break laws and codes, just because i don't want to be forced to deal with "legal contracts on the level I am today". They native population ought to think about selling some natural living spots to used up single 50 year olds who want out of the rat race instead odf making money from all those gambling casinos.

I don't smoke, rarely drink, only think i do do, is disturb the peace, screaming at these people who use business cunning over having a heart.

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Steven Peters

I recently saw an opt-out scam where the vendor had two check boxes. The text was different for each one, so you had to leave the first box unchecked, but then check the second box in order to opt-out of all their services. Pretty tricky.

X

Can we all agree on what we are discussing? This is not an issue of a company slipping an opt-out into the fine print of a long document (which would be a closer ethical question). This was an option, VERY CLEARLY PRINTED IN LARGE BOLD TYPE in a separate paragraph at the top of the page. Whether you opt in, opt out, or opt not to read, you are making a choice. Is it ethical to not accept responsibility for your choice?

ktb @ 22: Though I would agree with you generally, the line between ethics and the law in this case was blurred when the author suggested a legal solution to a question of ethics. However, legal and ehtical obligation are often coextensive. Regarding the travel insurance described, which was clearly disclosed and required but a single click to opt out, I was arguing that it is ethical (though it is also clearly legal).

Kirilius @ 25: Let us not get into the separate issue of whether dealing drugs is per se unethical, as you seem to think. As I'm sure you're aware, I never said that "the desire to make money can justify ANY type of behavior". I merely stated Orbitz's goal of making money should inform your expectation of their behavior, particularly so when you are allowing them to make decisions for you.

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trader n

At the university I went various student groups and programs collected fees on this opt-out system. You paid the fees up front along with the other incidental fees along with your tuition, but you had the option to opt out or some of them.

But this meant going to your registrar and filling out a form and waiting for a check. I did a quick search and lots of universities have the same system.

Obviously this works because it's too much hassle for every student to go through that trouble just to collect $10 or $20.

Ross

Don't believe that such underhandedness is limited to Evil Corporations. When I was in college (Univ of California) students were given the "option" to contribute to a political organization when paying registration fees. This started out as an opt-in, but soon enough became an opt-out, where you had to first pay the fee as part of your registration, then seek a refund that suprisingly, no one knew how to process!