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AOL, states agree on price

America Online members whose bills rose in a switch to flat-rate pricing will get a refund, according to an agreement between AOL and 19 states.

America Online will have to refund money to members whose bills were automatically raised when the company went to flat-rate pricing, according to an agreement reached today with attorneys general in 19 states.

Under the agreement, AOL (AOL) has the challenging task of seeking consent from as many of its seven million members as possible for the new billing practice.

The pact is intended to cool the legal heat that AOL attracted for the implementation of its new pricing plan. But the online giant is not off the hook yet. Last week a New York subscriber filed a class-action suit against AOL, claiming its new pricing policy violates New York law--a case that must still either be settled or go to court. The attorneys general who signed today's agreement also reserved their rights to continue negotiating with AOL over other unspecified policies.

Still, today's agreement effectively demonstrates AOL's intent to make nice on the question of the new pricing plan. On December 1, AOL instituted a new monthly $19.95 flat-rate plan for its online service that went into effect on the first billing day in December for all its members, although the exact date may be different for some customers.

AOL is automatically converting all members to the new fee, unless they specifically request otherwise. That means that members who were paying monthly fees of $9.95 for five hours of access will now get bills for $19.95, even if they didn't request the price change.

Although many members have applauded the move to all-you-can-eat pricing, many others--especially those who don't log on frequently--don't know about the price increase or that they could retain their old price.

The attorneys general for 19 states said AOL's practice constituted "negative option" billing, which is against the law in their states.

"We're not concerned that they raised it to $19.95. We're concerned about the method in which they did it," said Jack Norris, chief of special prosecutions for the state of Florida. "Companies shouldn't be making decisions for the consumer."

Today's agreement calls for AOL to inform as many members as possible about the price change to "afford its members protection from any possible adverse consequences of this conversion."

Several remedies to the problem are called for. The agreement states that AOL members who were automatically converted to the $19.95 plan will have until April 10 to convert back to the $9.95 plan. If they do convert back, they must be refunded the $10 difference that wouldn't have had to pay if they'd been given a choice in the first place.

AOL must also send out notices through the mail that "clearly and conspicuously" describe the new pricing plan, explain that members will automatically be converted to the new plan, and how members can retain their existing plans. AOL says it has already sent out a notice about the billing plan.

On top of that, AOL must display pop-up screens to a user's log-on screen that clearly spell out the pricing change. The screen must give the member the following choices: agreeing to the $19.95 plan; selecting a new service plan; retaining the current $9.95 plan; deferring the selection; or disconnecting from the service.

AOL had earlier reached a separate agreement with the state of Washington that called for similar pop-up screens, which were supposed to block members from entering the service until they either chose the $19.95 plan or "other options." As it is now implemented, however, the screen allows the user to get onto the service without actually making a choice.

AOL must also post terms of its service in several areas, which in fact AOL is already doing.

Lastly, AOL must provide a toll-free number for members to call for billing questions. It's already done this too, but members have had long waits before getting through to an operator.

The pact does not necessarily resolve all the issues that the attorneys general had. In fact, said Florida's Norris, who is still negotiating with the online giant over other issues, "this is for the limited purpose of dealing with this specific instance in this time frame. This is an interim agreement to deal with this specific problem. We wanted to act quickly."

Attorneys general from the following states signed the agreement: Arizona, Arkansas, California, Connecticut, Florida, Hawaii, Iowa, Illinois, Michigan, Minnesota, New Jersey, New York, Ohio, Tennessee, Texas, Vermont, Wisconsin, Massachusetts, Pennsylvania, and the territory of Guam.