The Department of Transportation announced a final rule mandating that airlines automatically give cash refunds to passengers and inform passengers of their right to a refund on Wednesday. The policy change highlights the Biden Administration’s continued hardline support of consumer rights in the skies. The USDOT forced airlines to pay out over $600 million in refunds in 2022. The agency also levied a record $140 million fine against Southwest for its 2022 holiday season meltdown.

The final rule requires any airline to provide an automatic refund for canceled or significantly changed flights within seven days for credit card payments and within 20 days for other forms of payment. This stipulation also applies to checked bag fees and charges for ancillary services like inflight WiFi.

It’s important to note that the refund is only required if the passenger rejects or isn’t offered alternative transportation or compensation, like credits for another flight. Airlines have to inform customers of their right to a refund, but people wanting refunds will have to be knowledgeable enough to turn down alternatives.

For clarity, the USDOT defines a significant change as:
– a three-hour delay (or early departure) on domestic flights
– a six-hour delay (or early departure) on international flights
– a change of departure or arrival airport on an itinerary
– the addition of connection points on an itinerary
– a downgrade to a lower class of service
– a change in connection airports for passengers with a disability
– a substitution of aircraft that makes an accessibility feature unavailable for passengers with a disability

Transportation Security Pete Buttigieg said in a release, “Passengers deserve to get their money back when an airline owes them – without headaches or haggling. Our new rule sets a new standard to require airlines to promptly provide cash refunds to their passengers.”

It’s no secret that refunds significantly eat into the profits of airlines. Delta Air Lines issued $6 billion in refunds between January 2020 and August 2022. Measures that force carriers to give out cash compensation also create an incentive for better service with fewer delays and cancellations.