Vonage Settlement Spurs Changes to Marketing Practices

After being accused of making it difficult, or nearly impossible, to cancel its service, Vonage reached a settlement with 32 states yesterday.

Under the terms of the agreement, Vonage must pay $3 million, as well as change the language it uses in its marketing.

The crux of the complaint (read here), was the lack of clarity surrounding the free services, trial periods and money-back guarantees Vonage offered. “Companies like Vonage have deliberately turned the whole notion of ‘customer service’ on its ear, so that consumers are even more frustrated and confused after they call the company than before,” said Montana Attorney General Steve Bullock in a statement. “That’s not good enough, and this settlement will hold Vonage to a higher standard—a standard of genuine customer satisfaction it should have been striving to meet without our intervention.”

Among the complaints was the fact that consumers were required to purchase other equipment to take part in the “free” service; consumers who canceled had to pay shipping to return equipment during this “free” trial period; and other fees and charges were not refunded upon cancellation within the “money back guarantee” period.

Vonage is offering refunds to eligible consumers who filed complaints regarding unauthorized charges between January 2004 and March 16, 2010.

Moving forward, the service provider must revise marketing disclosures associated with its equipment and service. Additionally, its practice of offering incentives to staff for convincing consumers not to cancel will now be limited.

“Vonage fully cooperated in the investigation and, as part of the settlement, has agreed to maintain or implement enhancements to its business practices that will improve customer experience and satisfaction, many of which the company implemented prior to completion of the settlement,” said Vonage in a statement.

The company added that the charges related to the payment to the states and the refunds were previously reflected in the company’s financial results, and that “no finding of any violation or wrongdoing was made by the states in connection with the investigation or settlement.”

Vonage spent $133 million advertising its services last year, and $73 million for the first eight months of this year, per Nielsen. This excludes spending online, where the company is very active. TBWA\Chiat\Day, New York, is the lead agency for Vonage.