America Online, the internet service provider, has become the latest victim of New York attorney-general Eliot Spitzer's probes and fines.
Mr Spitzer on Wednesday said the company would pay $1.25m in penalties and costs to New York state, and additional compensation of up to four months of service to New York customers who have complained about the company's cancellation practices.
The agreement with AOL also requires the company to reform its employee
incentive plan and monitor cancellation requests more closely.
“AOL is pleased that we have reached an agreement with the state of New York on customer care practices that we believe will increase quality assurance,” said Nicholas Graham, spokesperson for AOL.
AOL also reached a settlement with the state of Ohio regarding its customer care practices this year.
Approximately 1.9m New York residents are AOL subscribers and about 300 customer complaints came to Mr Spitzer's office. A spokesman for the attorney-general did not know if all the complaints came from New York state citizens, but said the settlement only applied to residents of New York.
Mr Spitzer's settlement accuses AOL of wrongfully keeping subscribers by using an “elaborate system for rewarding employees” who retained AOL subscribers seeking to cancel.
The signed agreement with AOL says “at various times since 2000” AOL required employees to save a certain amount of customers who wanted to cancel their service in order to receive portions of their salary.
In 2002, 48 per cent of customers were retained under this incentive plan, and in August 2004 the save number was at 49 per cent, according to the agreement.
Mr Spitzer said that “in many instances, such retention was done against subscribers' wishes, or without their consent”.