(LEGAL NEWSLINE)-One of the nation's largest providers of Internet-based phone service has settled claims by 32 state attorneys general who alleged the New Jersey-based company was overcharging consumers, officials said Monday.

VONAGE Holdings Co. provides voice over Internet protocol, or VoIP service, which allows for telephone voice transmission over a high-speed Internet connection.

The company was said to have failed to tell consumers in their advertisements that they must have high-speed Internet service in order to use their VoIP technology, yet they required consumers who lacked Internet service to pay activation/cancellation and return shipping fees for computer-related equipment.

The attorneys general also said many customers who thought they had cancelled the service complained they continued to receive monthly bills from the company, while others said VONAGE debited funds from their checking accounts, even after the customers attempted to cancel their VONAGE service.

The multistate settlement requires that, among other things, VONAGE make refunds to eligible consumers who filed complaints regarding certain unauthorized charges after January 2004.

VONAGE had paid incentives to customer service representatives for retaining customers in lieu of cancellation, when consumers called to cancel their service, AGs said Monday.

"When a contract allows a consumer to cancel within a certain time period, consumers have a right and are entitled to, exercise that right without undue obstacles thrown up by the other contracting party," Idaho Attorney General Lawrence Wasden said. "Consumers who were hurt will be able to obtain redress and the problems we saw ought not continue in the future."

Consumers who had problems with VONAGE beginning in January 2004 will be allowed to file a claim with the states.

VONAGE has agreed to enter into an assurance of voluntary compliance that requires the company to overhaul its practices.

"The agreement includes provisions to give consumers more information before they decide to contract with VONAGE," said Tennessee Attorney General Bob Cooper. "The settlement also makes it easier for a consumer to cancel the contract."

VONAGE will pay the states $3 million to cover the costs of their investigation, which was led by the Wisconsin attorney general's office.

The multistate investigation's seven-state executive committee also included Connecticut, Illinois, Michigan, Oregon, Pennsylvania and Texas.

The other participants the settlement are: Alabama, Arizona, Arkansas, Florida, Hawaii, Idaho, Indiana, Kansas, Kentucky, Louisiana, Maine, Missouri, Montana, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, South Carolina, South Dakota, Tennessee, Vermont, Washington and West Virginia.

From Legal Newsline: Reach staff reporter Chris Rizo at chrisrizo@legalnewsline.com.