Amazon allowed kids to make millions in app charges

By Anthony GiorgianniConsumer Reports

The Federal Trade Commission is suing Amazon for millions of dollars in mobile app charges that the agency said were made by children without their parents’ consent. It said Amazon continued to charge parents even after an employee warned about mounting consumer complaints.

In a lawsuit filed in federal court in Washington (PDF), the FTC is seeking consumer refunds and an order banning the company from charging parents or other account holders for unauthorized purchases.

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The suit comes six months after the agency announced that Apple agreed to make at least $32.5 million in refunds to parents of children who purchased items for mobile apps without adult consent.  Under that settlement with the FTC, Apple also was required to change its billing practices to ensure that customers would not be charged for purchases made without their consent. The FTC had accused Apple of failing to tell parents that by entering a password, they were approving a single in-app purchase and also 15 minutes of additional unlimited purchases their children could make without further action by the parent.

The similar Amazon case involves children’s purchases of virtual items such as “coins,” “stars,” and “acorns” for gaming apps installed on mobile devices such as the Kindle Fire.

When Amazon introduced in-app charges in its app store in September 2011, the FTC said, Amazon had no password requirements, allowing children to make unlimited purchases. It said Amazon invited children to obtain the virtual items, blurring the lines between those that cost virtual currency and those that cost real money.

Also read Protecting your child’s online privacy and our Guide to online security. And for details on another recent FTC action, read Don't risk your money and health on bogus weight-loss products.

“In many instances, parents have complained that their children could not or did not understand that their activities while playing the app could result in charges that cost real money,” the lawsuit says.

The largest quantity purchase available at any one time was $99.99, the agency said. One parent complained that her child was able to rack up $358 in charges.  The charges were billed to credit card or gift cards that must be linked to the mobile device when the app is installed. According to the lawsuit, Amazon keeps 30 percent of the charges collected in connection with the apps, which are produced by third-party developers.

The FTC pointed to a December 2011 internal Amazon email in which an employee expressed concerned over the thousands of complaints the practice was generating, describing the situation as a “near house on fire.”

“Even Amazon's own employees recognized the serious problem its process created,” FTC Chairwoman Edith Ramirez said in prepared statement.

The FTC said Amazon made some changes, at one point imposing a password requirement for purchases of more than $20. At the time, the FTC said, an Amazon Appstore manager wrote 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.”

Amazon later updated the password process in a way that still allowed children to make unlimited purchases during a 15-minute to one-hour window once a single purchase was authorized. And customers would receive a password prompt only in some cases. Finally, in June, shortly before the FTC filed its complaint, Amazon changed its process again to require account holder consent for app charges on its newer mobile devices, the FTC said.

Anthony Giorgianni

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