FTC Goes After Amazon for App Purchases by Children

SEATTLE (CN) - Amazon let kids make unauthorized mobile app charges and billed their parents for "millions of dollars" in disputed fees, the Federal Trade Commission claimed Thursday.

The federal complaint seeks refunds for thousands of improperly billed consumers.

Amazon allegedly failed to get proper consent for charges that children made within software applications, known as "in-app charges." Amazon's policy is that all in-app purchases are final and consumers face "significant hurdles" in obtaining refunds, according to the complaint.

"Many children incur unauthorized in-app charges without their parents' knowledge," FTC attorney Jason Adler wrote. "Even parents who discover the charges and want to request a refund have faced significant hurdles to doing so. Amazon's stated policy is that all in-app charges are final. To the extent consumers have sought an exception to that stated policy, Amazon's process is unclear and confusing, involving emails and web pages that do not explain how to seek a refund for in-app charges, or suggest that consumers cannot obtain a refund for such charges."

Games marketed for children will often allow players to purchase virtual "treats" by clicking a button, according to the complaint.

"When a user engages in an activity associated with an in-app charge (e.g., clicking on a button to acquire virtual treats for use in a game), Amazon displays a popup containing information about the virtual item and the amount of the charge (the 'Charge Popup')," the complaint states (parentheses in original). "A child, however, can clear the Charge Popup simply by pressing a button labeled 'Get Item.'"

Amazon allegedly keeps 30 percent of all in-app charges.

Passwords were not required for in-app charges when they were first introduced to the Amazon Appstore in 2011, according to the complaint. The FTC said Amazon immediately recognized there was a problem, and an Appstore manager called it a "house on fire."

"Amazon has received thousands of complaints related to unauthorized in-app charges by children in these and other games, amounting to millions of dollars of charges," the complaint states. "In fact, by December 2011, the month after Amazon introduced in-app charges, an Appstore manager commented that 'we're clearly causing problems for a large percentage of our customers,' describing the situation as 'near house on fire.' Seven months later, in July 2012, the Appstore manager again described this issue as a 'house on fire' situation. Not until June 2014 did Amazon change its in-app charge framework to obtain account holders' informed consent for in-app charges on its newer mobile devices."

Consumers have reported that they and their children did not know the in-app activity would result in real money charges, the FTC said.

"Many consumers report that they and their children were unaware that in-app activities would result in real monetary loss," the complaint states. "For example, one Appstore reviewer complaining about over $80 in unauthorized charges in Tap Zoo commented that her eight-year-old daughter thought she was purchasing the in game coin packs with virtual currency, not real money. A consumer whose child incurred unauthorized in-app charges in Ice Age Village explained that her daughter 'thought she was paying with acorns, but it seems to be hitting my credit card.' As one Amazon customer service representative acknowledged in responding to a parent's inquiry about unauthorized in-app charges: 'It's not a hack, but nearly as bad: it's an in-game purchase. A user, such as a child, can easily misinterpret the option to spend actual money as just part of the game.'"

Amazon updated its in-app policy in 2012 to require a password for charges over $20, according to the complaint.

"In or around March 2012, Amazon began requiring password entry to confirm individual in-app charges exceeding $20," the complaint says. "In deciding to change its framework for charges above $20, Amazon's Appstore manager noted that 'it's much easier to get upset about Amazon letting your child purchase a $99 product without any password protection than a $20 product[.]' An internal document commented that introducing a password prompt for in-app charges over $20 would ensure that those charges were incurred 'by the actual accountholder and not someone without permission.' Amazon did not implement a password requirement for in-app charges of $20 and under."

Amazon modified the in-app policy last year, but applied those changes inconsistently, according to the complaint.

"Not until early 2013 did Amazon adjust its in-app charge framework to require password entry in connection with any other in-app charges," the complaint states. "Even then, Amazon's modifications took effect at different times for different device models and, in some instances, have operated in different ways for different apps and different account holders. The password prompts also function differently from the password prompt described in paragraph 20, in that completing the prompt 'caches' (that is, stores) the password for a billing window ranging from fifteen minutes to an hour. The net result was that, unbeknownst to many consumers, Amazon sometimes would present account holders with a password prompt to confirm an in-app charge and sometimes would not."

Amazon did not change its policy to obtain informed consent for the in-app purchases until June 2014, shortly before the FTC won approval for its lawsuit, the agency said.

"Companies need to get consumers' consent before placing charges on their bills," FTC consumer protection director Jessica Rich said in a conference call with reporters today.

Rich said the FTC pursued litigation despite updates Amazon made to its in-app policy last month because "many, many consumers did not get refunds."

Amazon called the FTC's action "deeply disappointing."

"The main claim in the draft complaint is that we failed to get customers' informed consent to in-app charges made by children and did not address that problem quickly or effectively enough in response to customer complaints," the retailer's general counsel Andrew DeVore said in a statement. "We have continuously improved our experience since launch, but even at launch, when customers told us their kids had made purchases they didn't want we refunded those purchases. And as we have made clear from the outset of your inqui1y, our experience at launch was responsible, customer-focused, and lawful, including prominent notice of in-app purchasing, effective parental controls, real-time notice of every in-app purchase, and world-class customer service."

The FTC wants a permanent injunction preventing future improper billing, disgorgement of profits and consumer refunds.

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