America Online Inc. has agreed to pay US$1.25 million in penalties and change some of its customer-service procedures as part of a settlement reached Wednesday with the New York Attorney General Eliot Spitzer. AOL is a subsidiary of Time Warner Inc.

Spitzer"s office had been investigating AOL"s customer-service procedures in response to about 300 consumer complaints that the company had ignored their requests to cancel service and to stop billing them.

Under the agreement, AOL, which worked with Spitzer"s office to resolve the case, will alter the incentives it offers to customer representatives who successfully persuade consumers not to cancel their subscriptions, according to a statement from the attorney general"s office.

Dulles, Va.-based AOL couldn"t be reached for comment at deadline.

Spitzer"s investigation revealed that AOL employees who persuaded consumers who had called to cancel service not to do so received bonuses worth tens of thousands of dollars. For several years, AOL had instituted a policy requiring customer-service employees to "save" a certain number of accounts, making it difficult for consumers to cancel their subscriptions, according to the attorney general"s statement.

Under the deal, AOL also agreed to record all service-cancellation requests and verify action on the request through a third-party monitor. The company will also provide refunds of up to four months" worth of service to all New York consumers who claim harm based on improper cancellation procedures.