Internet service provider America Online will pay $1.25 million in penalties to settle an investigation into practices that allegedly made it difficult for customers to cancel their service, according to reports.

About 300 AOL customers filed complaints with the office of New York State Attorney General Eliot Spitzer, claiming that the provider ignored demands to cancel their Internet service and stop billing, according to the Associated Press. The provider, a wholly owned subsidiary of Time Warner, reportedly awarded bonuses to employees who were able to retain subscribers who called to cancel their service.

The wire service added that under the settlement, in which AOL did not admit or deny wrongdoing, the reward policy will be eliminated, and cancellations will be verified through a third-party monitor. AOL also agreed to provide up to four months of refunds to all New York consumers who claim that their cancellation requests were ignored; the company has 1.9 million subscribers in the state.

Spitzer’s probe is not the first to force AOL to reach into its pocket. In April, the company agreed to pay $75,000 for costs and to make refunds to a “small number” of customers in Ohio after reaching a settlement with that state’s attorney general, a company spokesman told the AP.

In September 2003, noted the wire service, AOL settled Federal Trade Commission allegations of unfair billing practices by agreeing to improve the way it deals with customers who want to cancel their Internet service.

In March, parent company Time Warner agreed to pay $300 million in civil penalties to settle Securities and Exchange Commission charges that it overstated Internet subscribers and Internet advertising revenue. Last December, it agreed to pay $210 million to settle similar charges with the Department of Justice.

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