Amazon allowed kids to spend millions on in-app purchases, FTC says

The agency's lawsuit against Amazon mirrors its earlier action against Apple for a similar problem

Amazon.com has billed parents for millions of dollars' worth of unauthorized in-app purchases made by their children, the FTC said in a complaint filed Thursday in a U.S. court.

The FTC's lawsuit, filed in U.S. District Court for the Western District of Washington, seeks a court order requiring Amazon.com to refund parents for unauthorized purchases made by their children. The FTC also wants the court to ban the company from billing parents and other account holders for in-app charges without their consent, the agency said in a press release.

Amazon.com keeps 30 percent of all in-app charges, the FTC said in its complaint. The Amazon case "highlights a central tenant" of consumer protection laws in the U.S., that companies should get customer permission before charging them, said Jessica Rich, director of the FTC's Consumer Protection Bureau, during a press conference about the lawsuit.

Amazon employees raised concerns about in-app purchases by children years before the company changed its procedures, Rich said. Amazon customers seeking refunds found a process "unclear and rife with deterrents," she said. Amazon's official policy on in-app purchases said it does not give refunds, she added.

Amazon, in a letter to the FTC July 1, said it was "deeply disappointed" that the agency was moving toward filing a lawsuit. "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," wrote Andrew DeVore, Amazon's associate general counsel.

The FTC's lawsuit against Amazon.com echoes a complaint brought by the agency against Apple. In January, Apple agreed to pay at least US$32.5 million to customers in a settlement with the FTC over children's in-app purchases.

This week, Politico reported that Apple has complained to the FTC that Google allows the same kinds of in-app purchases in its mobile app store.

The FTC's recent focus on in-app purchases by children has drawn criticism. This week, Senator Deb Fischer, a Nebraska Republican, questioned the FTC's actions in a letter to the agency.

"Few, if any, doubt that the app marketplace established in recent years by Amazon and its competitors has fundamentally expanded and improved the American economy," Fischer wrote. "To pursue enforcement against these companies for specific policies in place at the market's nascent stage would constitute a de facto tax on innovation that threatens future growth and opportunity."

In the Amazon case, the FTC noted that the company offers many children's apps for mobile devices such as the Kindle Fire. The company violated the FTC Act, prohibiting unfair and deceptive business practices, by billing parents and other Amazon account holders for charges incurred by children without adult consent.

Amazon's app store allowed children playing games to spend "unlimited amounts" of money to pay for virtual items without parental involvement, the FTC alleged.

When Amazon introduced in-app charges to the Amazon app store in November 2011, there were no password requirements of any kind, the FTC alleged. Many kids' games encouraged children to acquire virtual items in ways that blur the lines between spending virtual currency and real money, the agency said.

In one app, "Ice Age Village," children can use virtual coins and acorns to buy items in the game without a real-money charge. However, they can also purchase additional coins and acorns using real money on a screen that is visually similar to the one that has no real-money charge, the FTC said. A one-time purchase in the app could cost as much as $99.99.

As early as December 2011, Amazon employees raised concerns about in-app purchases, the FTC said in its complaint. One internal Amazon communication said that allowing unlimited in-app charges without any password was "clearly causing problems for a large percentage of our customers," the FTC said.

In March 2012, Amazon updated its in-app charge system to require an account owner to enter a password for individual in-app charges over $20. But Amazon continued to allow children to make an unlimited number of individual purchases of less than $20 without a parent's approval, the FTC said.

An Amazon employee noted at the time of the change 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," according to the complaint.

Then in early 2013, Amazon updated its in-app charge process to require password entry for some charges, but the process worked in different ways in different contexts, the FTC alleged. Even when a parent was prompted for a password to authorize a single in-app charge made by a child, that single authorization often opened an undisclosed window of 15 minutes to an hour allowing the child to make unlimited charges, the agency said.

Amazon changed its in-app purchase policy again in June, "roughly two and a half years after the problem first surfaced," the FTC said in a press release.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's email address is grant_gross@idg.com.

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