Vonage Agrees to $3 Million Settlement over its Business Practices

On November 16, 2009, Vonage Holdings Corp., one of the largest nomadic Voice over Internet Protocol (“VoIP”) providers in the country, reached an agreement with the attorneys general of 32 states to settle an investigation into certain of the company’s “business practices.” According to its filing with the Securities and Exchange Commission, Vonage agreed to pay $3 million to customers in the participating states, including legal and investigation fees incurred. The American City Business Journal reports that the affected states are: Alabama, Arizona, Arkansas, Connecticut, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Michigan, Missouri, Montana, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont, Washington, Wisconsin and West Virginia.

Since Vonage operates in New York State under these same “business practices,” it is unclear why New York is not included on the list.

According to the article, “Vonage will make refunds to eligible consumers who have filed unresolved complaints regarding unauthorized charges from January 2004 through March 16, 2010. . . . According to a multistate investigation, Vonage at one time allegedly paid incentives to customer service representatives for retaining customers in lieu of cancellation. As a result, customers reported that cancellation was extremely difficult, and sometimes impossible.” The Florida Attorney General was quoted as saying the settlement requires Vonage to strictly limit this practice and “requires recording and verification of these telephone calls.” The company will also revise its disclosures regarding its "free" services, money-back guarantees, and trial periods.

PULP has had the opportunity to represent New York consumers in their attempts to terminate their service with Vonage. One in particular had been a customer of Vonage for about six months and, because he had been a customer for less than the two year term of his contract, was subject to Vonage’s disconnection fee and recovery fee, which, according to Vonage, amounted to $97.55. When we examined Vonage’s customer contract on their web page, we noticed that the company completely absolves itself from any liability due to technical difficulties.

For example, the Vonage Terms of Service states:

“We will not be liable for any delay or failure to provide service, including 911 Dialing, at any time or any interruption or degradation of voice quality that is caused by any of the following: third party omission, equipment failure, equipment modification, force majeure, equipment shortage, equipment relocation, loss of power, outages, acts or omissions, or other causes.”

These limitations absolve Vonage of any liability, even if their equipment and service fail to operate when a customer attempts to make an emergency call to 911. The time appears to be ripe for Vonage to improve its “customer experience,” especially in a state like New York where the existing telephone consumer protections do not apply to VoIP providers such as Vonage. That’s a change which is long overdue as well. Companies providing telephone service should compete on a level playing field to be the most efficient one to meet - and exceed - minimum consumer protections.

Lou Manuta