AOL TO PAY OUT MILLIONS IN REFUNDS.

Byline: Steve Lohr The New York Times

America Online Inc., the fast-growing company that has ushered nearly eight million Americans into cyberspace, agreed Wednesday to give millions of dollars worth of credits and refunds as compensation for the network traffic jams that had been frustrating its customers since December.

The humbling announcement by America Online came in response to threats of lawsuits by dozens of states and an angry outcry from many subscribers, who have often received nothing but busy signals lately when trying to get onto the dial-up service.

The congestion began early last month after America Online, in an ambitious bid for further growth, started to charge customers a flat $19.95 monthly fee for unlimited use. Previously, the company had charged a much lower fee but began billing by the hour after the customer exceeded a monthly limit - five hours, in most cases.

Until Wednesday, America Online had sought to address the consumer complaints by announcing plans to expand the capacity of its network and then, under mounting pressure, to consider credits or refunds only on a case-by-case basis. But the position of several state attorneys general was that America Online's aggressive marketing campaign, combined with the frequent failure to supply the advertised new service, amounted to a deceptive business practice.

And the state officials portrayed Wednesday's blanket settlement as a milestone in extending consumer protection into the increasingly popular frontiers of the information age.

``Cyberspace is a new and exciting place to acquire information,'' said Jim Ryan, the attorney general of Illinois who coordinated the states' campaign to settle with America Online. ``But we must remain vigilant to make sure that consumers have the same protections there as they do in more traditional venues of commerce.''

Three dozen states, including California, joined Wednesday's announced agreement. But the attorneys general and America Online executives said the pact would cover all America Online subscribers nationwide.

New York Attorney General Dennis Vacco pronounced the agreement ``wholly satisfactory'' and added that it ``should put an end to the misleading marketing campaign that America Online waged to attract subscribers.''

Generally, the agreement calls for America Online to issue refunds or credit toward future service, as the customer chooses, to cover network problems during December and January. Under terms of the agreement, customers can receive credit for a free month of service or qualify for cash rebates up to $39.90.

The pact also requires America Online to temporarily curb its advertising for the $19.95 service, and to make any ads ``clearly and conspicuously'' state that customers may encounter delays when going on line.

America Online contends that Wednesday's agreement should calm its customers as it spends $350 million through the first half of this year to add more phone lines and powerful modems, thus enabling subscribers to connect to the service when they want. And Wall Street greeted the announcement as a step to put America Online's recent troubles behind it. America Online shares rose $2 Wednesday to close at $37.25 a share.