AOL settles with states on cancellation complaints

NEW YORK (Reuters) - Time Warner Inc.'s AOL reached a settlement with 48 states and the District of Columbia under which it will change its policy on account cancellations, officials announced on Wednesday.

The settlement stems from consumer complaints that AOL made it difficult to close down accounts -- for example, providing telephone service representatives with incentives for retaining customers who called to cancel the service.

Under the agreement, AOL will change its policy and make refunds to some customers. The settlement also covers other complaints about AOL billing practices.

AOL, which made most of its services free last year, will pay the states and the District of Columbia a total of $3 million for costs and fees.

Under last year's change, Time Warner disposed of AOL's Internet access businesses worldwide, building a free service for consumers that makes money from advertising, more closely resembling the business model of rivals Google and Yahoo Inc.

"AOL is pleased with this settlement, as it codifies a number of changes that were already made by AOL to improve our service to our members and puts to rest any remaining issues related to our old access business model," an AOL spokeswoman said.

The agreement with the states requires AOL to let customers use a Web site to cancel their accounts or move to the free service. It also put strict limitations on incentives for service representatives who deal with customers over the telephone, and requires that cancellation calls be recorded.

"In this agreement, we insisted that AOL put in place a framework that resolves existing consumer complaints and establish clear policies and procedures to prevent these problems in the future," Illinois Attorney General Lisa Madigan said in a statement.

(Reporting by Paul Thomasch and Michele Gershberg)