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AOL to Settle Case Brought by FTC
Firm Accused of Mistreating Subscribers

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By David A. Vise
Washington Post Staff Writer
Wednesday, September 24, 2003; Page E01

America Online yesterday agreed to settle Federal Trade Commission charges that it treated subscribers unfairly by failing to live up to the terms of some rebate offers and by making it too difficult to cancel monthly subscriptions to the Internet service.

The FTC alleged that AOL often continued to bill subscribers after they called to cancel their service. The company was also slow to send out $400 rebates to consumers who signed up for three years of Internet service from an AOL subsidiary, CompuServe, as part of their computer purchase, the FTC said.

"This type of offer can be very appealing, especially to consumers who otherwise might be unable to afford a computer," Lydia Parnes, deputy director of the agency's Bureau of Consumer Protection, said in a statement.

AOL agreed to a proposed consent decree with the FTC that requires the company to establish and maintain measures to ensure that cancellation requests are processed promptly and that billing stops.

The settlement also requires AOL to send confirmation notices to subscribers who called to cancel service but were persuaded to keep it. Subscribers who do not want to keep the service could then mail or fax back an enclosed cancellation request form, the FTC said.

AOL said in a statement that the company was not admitting any wrongdoing and was pleased to resolve the nearly four-year-old investigation.

"It is also worth noting that, after reviewing the facts, the FTC decided not to impose any fines or monetary restitution," AOL said in its statement. "Since 1999 AOL worked closely and cooperatively with the FTC to help them in its review, and is pleased that it has come to a close."

The FTC said it will accept public comments on the proposed decree until Oct. 23. Once the agreement is finalized, the company could be subject to a civil penalty of $11,000 for each violation of the consent decree.

Consumer groups have complained for years about America Online's sales and marketing practices. AOL typically bills millions of subscribers $23.90 per month for the service by automatically charging their credit cards.

When subscribers tried to cancel their service, customer service employees were directed to try to persuade them to change their minds, the FTC said. They sometimes failed to execute the order in a timely manner, allowing the company to continue charging fees.

"No company should retain subscribers against their wishes," Parnes said in her statement. "When customers cancel their service, they expect the billing to stop."

The settlement also includes charges that CompuServe failed to provide the $400 rebates to new customers as promised in a recruitment campaign from 1999 through early 2001. Instead of living up to the pledge to provide a rebate toward the purchase of a computer within eight to 10 weeks, or in some cases 45 days, AOL instead caused "substantial injury" to consumers by paying the rebates much later, the FTC charged.

AOL said it sent out all checks within 10 weeks of rebate "approval." Yesterday's proposed settlement, in which AOL agreed to pay rebates within 30 days or the time specified, was approved unanimously by the five FTC commissioners.

The settlement between AOL and the FTC has no direct relationship to ongoing probes by the Justice Department and the Securities and Exchange Commission into the Internet firm's accounting practices.

The struggling AOL has lost more than 1 million subscribers in the past year to the faster Internet connections provided by cable television and telephone firms. Last week, the corporate board of America Online's parent company, AOL Time Warner Inc., voted to scratch AOL from the company's name and revert to Time Warner.


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