AOL and Compuserve Settle FTC Charges of Unfair Practices

FTC Alleges That Charges Continued for Subscribers Who Asked to Cancel; $400 Rebates Were Not Delivered as Promised

For Release

America Online, Inc. (AOL) and its subsidiary, CompuServe Interactive Services, Inc. (CompuServe), today settled Federal Trade Commission charges that they engaged in two separate unfair practices. The first allegation involves AOL's continuing to bill AOL Internet service subscribers after they asked to cancel their subscriptions. The other allegation involves the late delivery of $400 rebates to consumers who signed up for CompuServe Internet service.

According to the FTC's complaint outlining the charges, most AOL subscribers who want to cancel their Internet service call AOL's customer service department. The complaint alleges that AOL's customer service representatives were responsible for trying to persuade consumers to change their minds about cancelling their AOL service. The FTC charged that AOL failed to implement appropriate measures to ensure that all customer requests for cancellation were properly executed. As a result, in numerous instances, subscribers who requested cancellation continued to be charged monthly service fees. The complaint alleges that this unfairly harmed consumers.

"No company should retain subscribers against their wishes," said Lydia Parnes, Deputy Director of the FTC's Bureau of Consumer Protection. "When consumers cancel their service, they expect the billing to stop."

The FTC's complaint also alleges that AOL and CompuServe failed to deliver timely rebates to consumers in connection with a $400 CompuServe rebate program. The companies promised consumers a $400 cash rebate toward the purchase of an eligible computer, if the consumers signed up for three years of CompuServe Internet Service at $21.95 per month. They promised that the rebates would be delivered within eight to 10 weeks, and in some cases, 45 days. The FTC alleges that the companies unfairly extended the time period in which they delivered the rebates to consumers, causing substantial injury to consumers whose rebates were not delivered within the time promised.

"This type of offer can be very appealing, especially to consumers who otherwise might be unable to afford a computer," Parnes said.

The proposed consent agreement addresses respondents' cancellation practices in several ways. It would require the respondents to establish and maintain appropriate measures for ensuring that subscribers' requests for cancellation are promptly processed and that billing ceases. It also would prohibit respondents from charging any subscriber who asks to be cancelled and is recorded as having agreed to continue his or her service ("recorded as saved"), unless they first obtain the subscriber's express informed consent to the continued billing. Furthermore, the settlement would require the respondents to send confirmation notices to subscribers who ask to be cancelled but who are recorded as saved. Internet service subscribers would get letters confirming that they agreed to continue their service and informing them of the terms of their continued service. If the subscribers do not wish to continue their Internet service, they would be able simply to mail or fax back an enclosed cancellation request form.

The proposed consent agreement contains a provision that would require AOL and CompuServe to have a reasonable basis for any claims made about the time frame in which any rebate offered in connection with Internet or online service will be mailed. It also would prohibit the companies from failing to provide such rebates within the times they specify or, if no time is specified, within 30 days.

The Commission vote to place the proposed consent agreement on the public record for comment was 5-0. An announcement regarding the proposed consent agreements will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until October 23, 2003 after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.

NOTE: The agreement referenced in this release is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, consent agreement, and analysis to aid public comment are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Contact Information

Media Contact:

Jen Schwartzman
Office of Public Affairs
202-326-2674

Staff Contact:

Michael Ostheimer or Heather Hippsley
Bureau of Consumer Protection
202-326-2699 or 202-326-3285