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AOL agrees to customer service reform

America Online will pay $1.25 million to New York state and change its customer retention process, Attorney General Spitzer says.

America Online agreed to pay $1.25 million to the state of New York and reform its customer service procedures, the state attorney general announced on Wednesday.

The agreement stems from consumers' complaints that AOL customer service representatives would either ignore requests, or make it unduly difficult, to cancel their service, according to a statement from Attorney General Eliot Spitzer. Spitzer said that an incentive system AOL had developed for its customer service representatives contributed to most of the actions that drew complaints.

"This agreement helps ensure that AOL will strive to keep its customers through quality service, not stealth retention programs," Spitzer said in a statement.

Under the agreement, AOL will no longer require its customer service representatives to meet a minimum quota for customer retention in order to receive a bonus. Previously, AOL would distribute bonuses in the "tens of thousands of dollars" if representatives were able to retain half the customers who called to cancel their service, according to the attorney general.

AOL has been under pressure for several years to shore up its declining subscriber base. The company's hold on dial-up customers has steadily declined as broadband service has ramped up, especially as competition in the broadband sector has heated up and subscriber prices have fallen.

The agreement also calls for AOL to have a third-party monitor to verify and record customer requests to continue their AOL service after a consumer had initially contacted AOL to cancel. AOL said it won't need to have a third-party monitor to record all calls. The new verification system will be introduced to certain call centers by January and all AOL call centers will have it in place by June, said Nicholas Graham, an AOL spokesman.

In addition to paying New York state $1.25 million in penalties and costs, AOL will also reimburse eligible New York consumers with a cash refund worth up to four months of service. Those consumers will have 120 days from Wednesday to fill out and submit a claim form necessary to collect their reimbursement.

The attorney general's office received approximately 300 complaints regarding AOL's customer service policies, according to Spitzer. Based on a dial-up account cost of $23.90 a month, AOL may pay at least $29,000 in refunds to New York consumers.

"The cost is secondary to doing right by our members," Graham said.

The investigation began in 2004 and reviewed cancellations going back to 2001, Graham said. He noted that AOL has cooperated fully during the investigation.

"AOL is pleased to reach an agreement with the state attorney general of New York," Graham said, adding that it enhances the relationship AOL has with a certain segment of its members.

New York's attorney general office is the second to pursue an investigation and agreement with AOL over customer care practices. Last April, the attorney general of Ohio concluded an 18-month investigation into AOL's customer care practices.

AOL paid $75,000 to the state of Ohio as part of its agreement, as well as some limited refunds to customers, Graham said. The issues involved areas such as the customer retention process, as well as billing and cancellation refunds.