FTC Claims Amazon Illegally Billed Parents Millions of Dollars for In-App Purchases

FTC claims Amazon illegally billed parents for unauthorized in-app purchases by kids
Mobile apps have figured out a clever (and lucrative) way to make money. The profit doesn’t lie in selling the game itself, but selling the user in-game advantages which allows for greater progression and easier advancement. These in-app purchases are worth millions of dollars, but the Federal Trade Commission (FTC) says many made through Amazon were illegally done by children who may not have realized they were spending real money.

It may not seem like a big deal, but the charges were often for $100 or more. Any unexpected charges had the potential to play havoc with a family’s monthly finances, especially those living from paycheck to paycheck. Imagine if you were on a tight budget and all of a sudden an unexpected charge for $100 or more appears on your phone bill which you never authorized. You would want that money back, but Amazon didn’t make it easy to do so.

In a complaint filed on Thursday, the FTC alleges Amazon has been illegally charging parents millions of dollars for in-app purchases made by their children through mobile devices without their parents’ consent. The FTC want Amazon to refund all the money they’ve collected from parents whose children purchased in-app features without their knowledge.

Selling features within mobile apps has become a profitable way for companies to make money. The in-app features usually give the player extra game coins, or better powers, so they are able to advance further than they would be without the purchase. The FTC alleges that in 2011, when Amazon first launched in-app purchases, there was no password required in order to make the purchase. Without a password, children were able to make unlimited purchases without asking their parents or getting permission to do so. Even worse, the FTC claims the games actually encouraged kids to purchase in-app features by making it confusing as to whether the purchase being made was with real money or in-game money.

The FTC then alleges that once Amazon realized there was an issue, they didn’t do anything to resolve it in a timely manner. Citing internal Amazon communications, they say the company was aware in-app purchases without password protect were causing issues for a lot of customers in the first months after launching the service. Although they slowly made changes over time, it wasn’t until June 2014, a short period of time before the FTC voted to approve the complaint against Amazon, that Amazon actually made the needed changes to obtain the account holders’ informed consent for in-app charges on newer mobile devices.

As stated in the FTC press release, “Amazon’s in-app system allowed children to incur unlimited charges on their parents’ accounts without permission. Even Amazon’s own employees recognized the serious problem its process created. We are seeking refunds for affected parents and a court order to ensure that Amazon gets parents’ consent for in-app purchases.”

The FTC also has issues with Amazon’s refund policy on these charges. Not only was it the company’s stated policy to offer no refunds for in-app charges, parents who attempted to get an exception had to maneuver through a confusing process, which was meant to discourage them from seeking a refund.

For Amazon, these in-app purchases are worth big money. The company typically keeps 30% of the in-app purchase price, so there was a monetary incentive for them not to act quickly with refunding or stopping these charges.

(Photo courtesy of Wolfgang Lonien)

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