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3 Online Firms Settle 'Free Trial' Offer Allegations

Telecom: FTC says Prodigy, CompuServe and AOL didn't tell consumers they faced automatic billing in future months.

May 02, 1997|From Reuters

WASHINGTON — America Online, CompuServe and Prodigy Services on Thursday settled government allegations that supposed "free trial" offers resulted in unexpected charges to consumers.

The Federal Trade Commission voted 5-0 for the agreement requiring that--among other things--companies get written authorization from consumers before tapping their checking accounts electronically.

No fines were levied against the three. AOL, CompuServe and Prodigy said in statements that they are now complying with the law.

AOL must also prepare a consumer education program about the use of electronic payment systems. It will be distributed through the World Wide Web and 50,000 color brochures.

The government said one problem was that the companies would offer free introductory service without letting consumers know they would face automatic billing after the trial period ended. "When you sign up at a record club, they tell you you have to cancel," said David Medine, who heads the credit division of the FTC. "When you signed up for your free trial membership [for the online services], they didn't tell you you had to cancel."

Another problem was that consumers were surprised by automatic debits of their checking accounts for varying amounts of money, depending on usage. AOL also debited accounts without authorization and apparently in violation of federal law, the FTC said.

The FTC said AOL has promised that accounts will be debited only after customers return a written authorization.

In addition, "the firms will have to provide a 10-day advance notice of differing debits to checking accounts," he said. "If you have a flat fee of $19.95 every month, you won't get [a] notice, but if you run higher or lower charges, you will get notice."

Medine said the agency had no estimate of the amount of money the misrepresentations had cost customers.

The free-trial offers were largely responsible for the dramatic increase in the number of AOL customers, which resulted in more subscribers than the company's system could handle.

AOL, based in Dulles, Va., is the world's largest online service provider, with 8 million customers. CompuServe, based in Columbus, Ohio, is second. Privately held Prodigy, based in White Plains, N.Y., ranks fourth, after Microsoft Network.

The agreements with the companies will be subject to public comment for 60 days. Comments may be made to the FTC through its Web site at and clicking on "questions or comments."

America Online shares rose $1.875 to close at $47 on the New York Stock Exchange. CompuServe rose 25 cents to close at $9.375 on Nasdaq.

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