TELECOM Digest OnLine - Sorted: AOL to Pay $3 Million, and Reform Cancel Penalties

AOL to Pay $3 Million, and Reform Cancel Penalties

Michael Liedtke, AP Business Writer (
Wed, 11 Jul 2007 23:38:21 -0500

By MICHAEL LIEDTKE, AP Business Writer

Averting a looming court battle over how it has handled the exodus
from its Internet dial-up service, AOL has agreed to make it easier
for its remaining customers to leave as part of a $3 million
settlement with 48 states and the District of Columbia.

The resolution announced Wednesday was driven by a deluge of
complaints from AOL customers who said they tried to close their
accounts, only to be thwarted in their attempts or discover they were
still being billed for services that they thought had been canceled.

The outcry triggered a multistate investigation that would have
culminated in a lawsuit if AOL hadn't agreed to ante up and change its
ways, said David Tiede, a deputy attorney general in California.

California was among the states that played a leading role in the
settlement. New York and Florida were the only states that didn't
participate in the inquiry.

AOL, the Internet division of Time Warner Inc., didn't acknowledge any
wrongdoing in the settlement.

Company spokeswoman Amy Call downplayed the impact of the settlement,
saying AOL had already voluntarily improved the way it handled
cancellations during 2005 and 2006. "This just codifies those
safeguards," she said.

As part of the settlement, AOL agreed to maintain an online channel
for processing cancellations. Although it has long been one of the
Internet's best-known companies, AOL didn't set up an online
cancellation system until last August. Previously, all cancellation
requests had to be made by fax, mail or telephone.

Subscribers who phoned AOL to cancel their service sometimes were
greeted by aggressive customer service representatives who were paid
bonuses of up to $3,000 if they found a way to retain the business,
according to the multistate settlement. Customers complained that
AOL's incentive system created an obstructive culture that made
service cancellations difficult.

"Consumers who called were put on hold or transferred repeatedly until
they hung up in disgust," said Connecticut Attorney General Richard
Blumenthal, who described AOL's practices as "outlandish and

The settlement requires AOL to issue refunds to consumers who can show
they were still charged monthly fees after trying to cancel their
services. AOL's fees currently range from $9.95 to $25.90 per month.
Tiede said the multistate investigation didn't estimate how much money
AOL might have to refund.

The $3 million settlement will be divided among the 48 states and the
District of Columbia to cover the costs of their inquiry into AOL's
practices and finance other consumer protection efforts.

AOL ended March with 12 million U.S. subscribers, down from 21 million
less than two years ago.

Customers have been defecting with greater frequency since last
August, when AOL began giving away e-mail accounts and software that
was previously available only to subscribers. The decision, prompted
by free services from Google Inc., Yahoo Inc. and Microsoft Corp.,
removed one of the main reasons many customers had been clinging to
their AOL accounts, even if they lived in households with high-speed
Internet access.

California Attorney General Jerry Brown predicted Wednesday's
multistate agreement "will minimize the potential for consumer
confusion during the transition to free e-mail accounts."

This isn't the first time AOL has run into legal trouble for
frustrating customers who wanted to dump the Internet access service.

In 2005, AOL paid $1.25 million in penalties and costs to resolve a
similar complaint in New York. In 2003, the company agreed to improve
the way it dealt with customer cancellation requests as part of a
Federal Trade Commission inquiry into allegations about unfair billing

In a separate development, investors hurt by accounting shenanigans
that inflated AOL's advertising revenue from 1998 to 2002 will begin
to receive payments from a $2.65 billion class action settlement later
this month.

The initial distribution of the money was held up last month after a
technology company, BizProLink LLC, filed an appeal seeking a share of
the proceeds.

Copyright 2007 The Associated Press.

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