US officials propose $25 million fine against Air Canada over airfare refunds

(CNN Business) US officials are seeking a $25 million fine from Air Canada, accusing the airline of failing to provide timely refunds to more than 5,000 passengers during the coronavirus pandemic.

The formal complaint is the first enforcement action that the Department of Transportation has announced against an airline since the pandemic upended the travel industry in the spring of 2020. Air Canada said it would dispute the allegations and believes the DOT argument "has no merit."

US rules set the minimum standards for airline refunds, requiring that tickets be paid back in cash when an airline cancels a flight or significantly changes the flight schedule.

But would-be travelers have filed nearly 98,000 complaints against airlines with the DOT since the pandemic began, alleging airlines did not follow the rules. Consumer Reports, which has advocated on behalf of customers in refund disputes, said some customers were pressured to take vouchers for future flights rather than cash refunds.

The issue led DOT to issue a public warning to airlines to follow the rules and provide proper refunds.

"Air Canada did not make such good faith efforts," the formal complaint filed Tuesday reads. "Instead, for almost one year after the announcement of the May 2020 enforcement notice, Air Canada continued its no-refund policy in violation of U.S. law."

Air Canada told CNN in a statement that it would "vigorously challenge the proceedings."

The airline said it would argue that the DOT rules on refunds are unenforceable guidelines.

Air Canada said it has issued $1.2 billion in refunds to customers who met the airline's own criteria for a refund, and is processing more refunds with money from a Canadian government financial aid package.

Some customers waited 13 months for refunds, DOT said. Federal rules require refunds be paid in 20 days, at the longest.

Transportation Department data show nearly 6,300 complaints against Air Canada's refund practices since March 2020, when the number of complaints began climbing. In May 2020 alone, the DOT received 1,705 complaints about Air Canada's refund practices. In the previous year, passengers filed only 25 refund complaints against Air Canada.

The complaint accuses Air Canada of committing 5,110 violations of US law, and asks an administrative law judge to fine the airline $5,000 per violation, for a total of $25,550,000. DOT said it believes that amount is "high enough to have a deterrent effect."

DOT said it is "actively investigating the refund practices of other US and foreign carriers."

Travel between the United States and Canada is still restricted due to the coronavirus.