America Online Settles Charges of Misleading Consumers

America Online Inc. agreed to pay $2.6 million to 44 U.S. states, including California, to settle allegations that the leading online service misled consumers about fees and phone rates.

But consumers won’t see any of that money, which will instead be shared by the states for the costs of investigation and consumer education.

California will receive about $100,000, said Bill Maile, a spokesman for Atty. Gen. Dan Lungren’s office. California also took part in two previous multistate agreements with AOL over pricing and service glitches.

Part of the most recent investigation included allegations that the Dulles-based company made unauthorized charges to some customers’ accounts for books, software and services.

The settlement averts a possible lawsuit from the states, which have been investigating AOL’s advertising practices for two years.

“Under this settlement, AOL must clearly inform consumers in advance whenever there is going to be a price increase or substantial service change,” Massachusetts Atty. Gen. Scott Harshbarger said in a statement.

AOL spokeswoman Tricia Primrose said the settlement isn’t an admission of wrongdoing and added that the company has been working with the states for two years to improve its advertising.

“This is setting standards that the attorney generals intend to apply to the entire industry,” she said.

Under the terms of the agreement, America Online agreed to make “clear and conspicuous” notice of fees or contract changes at least 30 days in advance; disclose the specific terms of any free trial offer; disclose any telephone charges or fees associated with accessing service; disclose the exact procedure for cancellation and send written confirmation of cancellation requests; ensure that its advertising practices comply with state law; and implement online procedures to prevent unauthorized purchases and charges.

This is the third time the online service has faced off with state attorneys general.

In January 1997, AOL agreed to reimburse customers in a settlement with 37 states related to a dispute over customers’ ability to log on to the service.

The company also agreed in December 1996 to revise a pricing strategy in a settlement with 19 states that followed subscribers’ complaints that they weren’t given enough notice before being automatically switched to a new plan costing $19.95 a month for unlimited Internet time.

Also Thursday, AOL said it boosted security after a hacker stole a subscriber’s password, allowing him to vandalize the American Civil Liberties Union’s site on AOL’s service.

A person pretending to be a subscriber called AOL’s customer service and asked to change the subscriber’s password. Though AOL requires several pieces of personal information to change a password, a customer-service employee allowed the caller to change it without some of that information, an AOL spokeswoman said.

Requests to change passwords are now routed to a small group of highly trained customer-service representatives, said spokeswoman Ann Brackbill. The company alerted its service employees that the break-in may spur a rash of copycat actions from other hackers, and it fired the service representative who allowed the hacker to change the password, she said.

“The hacker posted a bizarre one-line message where you normally see ACLU news,” said Brackbill. “The person who did this clearly violated state and federal law.”

Though AOL doesn’t know the identity of the hacker, the company canceled that account, the company said.

AOL shares rose $1.06 to $83.50 on the New York Stock Exchange.