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AOL, states settle dispute
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May 28, 1998: 3:44 p.m. ET
44 state attorneys general reach pact for firm to alter marketing practices
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NEW YORK (CNNfn) - America Online Inc., the nation's leading online services provider, agreed with 44 states Thursday to alter its marketing pitch to better inform consumers of online charges and pricing policies.
The comprehensive agreement caps two years of close negotiations sparked by complaints from subscribers who signed up for a free trial offer only to be billed later.
As part of the agreement, the Dulles, Va.-based company will pay $2.6 million to cover the costs of the investigation. The settlement, however, doesn't involve any additional subscriber refunds, which have totaled $34 million since 1996.
"We are demystifying the relationship between consumers and online services," said Illinois Attorney General Jim Ryan, who spearheaded the investigation.
"Under this settlement, AOL must notify consumers in advance whenever there is a price increase or substantial service change. The notification must be clear and direct. The goal is to make sure that consumers know all the facts so they can make informed choices," Ryan said.
In announcing the agreement, AOL officials and state attorneys general hailed it as a future standard for Internet service providers (ISPs).
"We are now committed, now that we have these world-class standards for consumer service inside the Internet industry, to working with the attorneys general to assure that in fact these standards are applied industry-wide," said George Vradenburg, general counsel of AOL.
Under terms of agreement, AOL's "Free Trial Offers" must be accompanied by new disclosures stating that free trial hours must be used within a month and the consumer must cancel the trial to avoid billing. AOL also must mail a notice of cancellation.
If AOL increases its monthly fees or otherwise modifies its contract, it must provide clear notice of the change at least 30 days in advance. If such notice is not delivered, a subscriber is entitled to a refund on any price increase.
AOL has agreed to notify all consumers through a pop-up screen that they will incur added charges when they enter a game or other premium-service area.
Other states that are part of the agreement are Alabama, Alaska, Arizona, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Idaho, Iowa, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia and Wisconsin.
The agreement is the third reached between AOL and states. In February 1997, 36 states led by Illinois' Ryan reached an agreement with AOL that ensured consumers would have access to the company's $19.95-a-month unlimited service promotion and provided refunds and credits for those who were unable to obtain service.
In December 1996, 19 states signed another settlement with AOL that gave consumers clearer notification when the company switched them to the $19.95-a-month plan.
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