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FTC settles with online services

The Federal Trade Commission settles with AOL, CompuServe, and Prodigy over allegations that "free trial offers" caused consumers to rack up unforeseen charges.

The Federal Trade Commission said today that it has settled with three of the nation's largest online services over allegations that their heavily advertised "free trial offers" caused consumers to rack up unforeseen charges.

The FTC accused America Online, CompuServe, and Prodigy of not making it clear to customers that they must cancel their service after trial offers ended or they would be enrolled as a paid subscriber.

The FTC also alleged that AOL "failed to inform consumers that 15 seconds of connect time was added to each online session, resulting in additional undisclosed charges; and misrepresented that it would not debit many of its customers' bank accounts before receiving authorization."

The settlement requires online services to fully disclose any automatic enrollment plans that follow "free trials," to make clear and prominent posting of any condition that calls for consumers to cancel subscriptions in order to avoid charges, and requires the companies to provide an easy system for canceling service. It also calls for AOL and other services to disclose any fees for connection time.

Online services also have to get consumers' authorization before debiting their bank or credit card accounts. They must notify customers in advance the amount that will be debited.

AOL also has agreed to run a consumer education program about electronic payment systems including the distribution of at least 50,000 color brochures.

Although the settlement was announced today, negotiations have been underway since last year, according to AOL.

"We reached an agreement with the FTC in September 1996 and the disclosure practices set out in this FTC decree have actually been in place at AOL for quite some time," George Vradenburg, general counsel to AOL said today in a statement.

"AOL believes this decree can and should serve as a 'best practices' standard for the entire interactive service industry, and it is our understanding that the FTC intends to apply this decree in that manner," he added.

The FTC is satisfied with the action the three online services have taken so far, but will still monitor their implementation of customer-friendly cancellation systems, as well as future compliance with the disclosure rules laid out by the settlement.

"We try to give companies flexibility for compliance. It's their job to figure out ways to make it easy for consumers to cancel because customers can't be left waiting on hold for a long time," David Maedine the FTC's associate director for credit practices said today.

"The settlement only applies to the three companies, but more than 90 percent of all online services have agreed to abide by important consumer protection standards," he said. "The FTC is already looking into the other industry members for compliance."

The settlement does not constitute an admission of guilt, and it will be open for public comment for the next 60 days before being finalized. After it is signed, the three online services could be fined up to $11,000 for each violation.