Beware of Orbitz and 'deceptive' practices
The travel site was fined $60,000 for tucking advertising charges into fine print. This is the second time in the past two years that Orbitz has been called out for "deceptive" practices and trying to dupe consumers.
commentary Frequent fliers beware. Consider this a sort of travel warning.
Orbitz, the beleaguered service that aggregates air and hotel fare so users can compare prices via the Web, has again been caught trying to dupe customers.
The U.S. Department of Transportation (DOT) announced on Monday that Orbitz was hit with a $60,000 fine for violating rules prohibiting "deceptive price advertising." Seems the DOT imposes rules on how airfare prices can be displayed online. Orbitz and rivals, such as Travelocity and Expedia, are required to post the full price of an airline ticket in their ads. Hiding or obscuring surcharges, taxes, or other additional fees isn't allowed.
So, what did Orbitz do?
The DOT said in a statement: "Consumers clicking on an advertisement were not notified of the additional charges until after they arrived at the following page and scrolled down to the bottom...where information in fine print about the taxes and fees could be found."
The terms "fine print" and "deceptive," are not new when discussing the business practices of Orbitz. Two years ago, Congress started investigating three marketing companies accused of helping retailers dupe customers into joining online loyalty programs and paying monthly fees.
The U.S. senators who investigated the marketers, WebLoyalty, Vertrue and Affinion, called the companies' practices a "scam."
The marketing companies were found by the government to have "tricked" consumers into entering their e-mail addresses just before they completed purchases at Orbitz and the other retailers. A pop-up ad, which many consumers said appeared to be from the retailer, offered them cash back or a coupon if they keyed in their e-mail address. Those who provided information often had no idea that they were agreeing to join the programs because--you guessed it--the disclosure was buried in fine print.
Not only was Orbitz one of the 80 retailers who were in league with the scammers, but it also was among an elite group of merchants that the government said generated more than $10 million from the programs.
In all, the marketers and participating retailers banked nearly $800 million from the scheme. They took money from old people and those new to online shopping. They took money from injured Iraqi war veterans and the disabled and lots of ordinary Americans who had their guards down because they never suspected their favorite merchants would sell them out in such an egregious way.
Investigators working for the Senate found that the marketers made it very difficult for victims to cancel. And here's the rub: none of this was technically against the law, at least at the time.
The marketing companies did run into trouble with numerous states' attorney general and were forced to pay fines. The retailers on the other hand largely got off without even a wrist slap. Speaking of wrist slaps, that is exactly what a $60,000 fine is to a company like Orbitz.
Sure, Orbitz's stock is nearing penny-stock territory. The company's shares closed trading today down 2 percent to $1.87. For the first six months of the year, Orbitz is $2 million in the red. But the company also generated $386 million in revenue during that period.
How much of a deterrent is a $60,000 fine going to be?
The DOT deserves some credit for at least meting out punishment, no matter how small. That's more than Congress did to any retailer involved in the scam loyalty programs. While Congress outlawed the tactics employed by WebLoyalty, Vertrue, and Affinion, the retailers walked away largely unscathed.
And the question is now, did the retailers learn a lesson or did they just look for a new loophole in the law to exploit? As any policeman can tell you, if you shut down one type of scam, the bad guys are likely to think up a new one.
By not punishing the retailers and certainly one like Orbitz, which now has a track record of employing dubious advertising methods, authorities send the wrong message. The travel service and its integrity-challenged leadership may have concluded the risk of suffering serious consequences for employing these tactics was low.
Someone, maybe even U.S. Transportation Secretary Ray LaHood, should consider that it might be time to crack down, take a heavier hand should Orbitz CEO Barney Harford or any of the other leaders in travel employ such anti-consumer practices again.
See, the thing that jumps out at you when you read the names of the 80 companies who were in cahoots with WebLoyalty, Vertrue, and Affinion, is the large number of travel companies involved. Among the former one-time partners of the marketing companies are Expedia, Priceline, Travelocity, U.S. Airways, Hotwire, Cheap Tickets, Continental Airlines, and Delta Airlines.
Update 10-21-11, 11:25 a.m. PT: Just received a heads up that Continental Airlines and US Airways, were also fined by the DOT for "violating rules on deceptive advertising" this year. In the case of Continental, the DOT slapped the company with a $120,000 fine. According to the Dallas Morning News, the DOT did so after learning "Continental listed a fare from San Jose, Calif., to San Salvador, El Salvador, as $298 on the first two web pages seen by the consumer but $538 on the third page after the surcharge was disclosed." Yikes. Reader, be careful booking travel fare.