FTC Sues Amazon Over App Charges Made by Kids

Following through on an earlier threat, the Federal Trade Commission filed suit against Amazon.com (NASDAQ: AMZN), alleging the online retail giant has billed parents and other account holders for millions of dollars in unauthorized in-app charges incurred by children.

The FTC’s lawsuit, according to a statement released by the regulatory agency, seeks a court order that would refund consumers for the unauthorized charges and permanently bar Amazon from billing parents and other account holders for in-app charges made without their consent.

According to the complaint, Amazon keeps 30% of all in-app charges.

“Amazon’s in-app system allowed children to incur unlimited charges on their parents’ accounts without permission,” FTC Chairwoman Edith Ramirez said in the statement. “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.”

Amazon didn’t immediately respond to a request for comment. But the company has defended its practices, saying it will fight the allegations in court and won’t settle the charges as Apple did in a similar case with the FTC earlier this year.

In January, Apple (NASDAQ: AAPL) paid $32.5 million in consumer relief to settle charges that it did not have sufficient controls to prevent children from making in-app purchases without parental consent.  Apple also agreed to disclosure requirements over a 20-year period.

Amazon has drawn a contrast between its policies and those at Apple, saying it already provides refunds when parents report orders that were placed by children.

Andrew DeVore, an associate general counsel at Amazon, said earlier this month that the Seattle-based company has been left with “no choice but to defend our approach in court.”

The FTC’s complaint, filed Thursday in federal court in the Western District of Washington, alleges that when Amazon introduced in-app charges to the Amazon Appstore in November 2011, there were no password requirements on in-app charges, including in children’s games and other apps that appeal to children. According to the complaint, this left parents stuck with charges they didn’t authorize.

According to the FTC, kids’ games offered by Amazon often encourage children to acquire virtual items in ways that blur the lines between what costs virtual currency and what costs real money.