FTC vs. Amazon: Are your kids incurring charges for unauthorized in-app purchases?

Published Jul 10, 2014 12:47 PM

NEW YORK, NY - SEPTEMBER 28: The new Amazon tablet called the Kindle Fire is displayed on September 28, 2011 in New York City. The Fire, which will be priced at $199, is an expanded version of the company’s Kindle e-reader that has 8GB of storage and WiFi. The Fire gives users access to streaming video, as well as e-books, apps and music, and has a Web browser. In addition to the Fire, Bezos introduced four new Kindles including a Kindle touch model. (Photo by Spencer Platt/Getty Images)

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Amazon has billed parents and other account-holders for millions of dollars after their children made unauthorized in-app purchases, according to the Federal Trade Commission.

In a complaint filed Thursday in federal court, the FTC asked for a ban on the billing of all in-app purchases made without parental consent, saying Amazon keeps 30 percent of such charges. The FTC said it is seeking a court order that would require customer refunds for the unauthorized charges after thousands of parents complained about charges made by their kids.

“Amazon’s in-app system allowed children to incur unlimited charges on their parents’ accounts without permission,” said FTC Chairwoman Edith Ramirez in a statement. “Even Amazon's own employees recognized the serious problem its process created."

According to the FTC, internal emails from Amazon referred to the situation as a "near house on fire" and show that a month after introducing apps into the Amazon store, the company was already concerned about in-app purchases made without password protection.

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Amazon has said previously that it worked to address the problem and already refunded customers who told the company their children made purchases without their consent.

Amazon has also hinted that it would fight the charges rather than settle, as Apple did earlier this year for some $32 million.

"It's an understatement to say that this response is deeply disappointing. The Commission's unwillingness to depart from the precedent it set with Apple despite our very different facts leaves us no choice but to defend our approach in court," Amazon's attorney wrote in a letter to Ramirez dated July 1.

Part of the problem, according to the FTC, is that kids’ games often blur the line between what costs real money versus virtual cash:

In the app “Ice Age Village,” for example, the complaint noted that children can use “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 largest quantity purchase available in the app would cost $99.99.

Some critics have characterized the FTC's actions as overreaching.

In another letter addressed to Ramirez on Wednesday, Republican Senator Deb Fischer of Nebraska called the regulator's actions a "de facto tax on innovation that threatens future growth and opportunity." Fischer writes:

I am concerned that pressuring companies into sweeping, multi-decade consent orders reflects an attempt by the Commission to gain by enforcement what has been withheld by Congress — namely, unchecked regulatory control over the technology sector.

In a blog post, Geoffrey Manne, a law lecturer and founder of the pro-business think tank International Center for Law and Economics, called the FTC's pending action against Amazon an "

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egregious product design enforcement."

Manne argues that certain Amazon features, such as its 1-click purchase, are user favorites and that the company provides several ways to prevent kids (or adults) from accidentally paying for in-app extras. Manne writes:

Amazon has built its entire business around the “1-click” concept — which consumers love — and implemented a host of notification and security processes hewing as much as possible to that design choice, but nevertheless taking account of the sorts of issues raised by in-app purchases. Moreover — and perhaps most significantly — it has implemented an innovative and comprehensive parental control regime (including the ability to turn off all in-app purchases) — Kindle Free Time — that arguably goes well beyond anything the FTC required in its Apple consent order.

What do you think? Is the FTC going too far in cracking down on companies like Amazon and Apple? Have you seen similar charges on your own app-store bills, Amazon or otherwise? Let us know on Facebook, Tweet us, or leave a comment below.

DOCUMENT: Read the FTC complaint

This story has been updated.