Feds Sue Amazon Over Kids’ Spending

The online giant plans to fight the charges in court.

National Journal
July 10, 2014, 8:45 a.m.

Amazon should have done more to pre­vent kids from rack­ing up huge bills on mo­bile apps, ac­cord­ing to a fed­er­al law­suit filed Thursday.

The Fed­er­al Trade Com­mis­sion is seek­ing mil­lions of dol­lars in re­funds for par­ents whose chil­dren made un­au­thor­ized pur­chases for in-app items in Amazon’s store.

For ex­ample, the app “Ice Age Vil­lage” al­lows users to buy ad­di­tion­al “coins” and “acorns” us­ing real money, the FTC said. The largest pos­sible in-game pur­chase would be $99.99, ac­cord­ing to the agency.

Some par­ents re­ceived bills for hun­dreds of dol­lars for their chil­dren’s spend­ing sprees, the FTC said.

Amazon keeps 30 per­cent of all in-app pur­chases, ac­cord­ing to the com­plaint. The store of­fers apps for the Kindle Fire and oth­er devices that use the An­droid op­er­at­ing sys­tem. 

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

The case is sim­il­ar to one the FTC brought against Apple earli­er this year. But Apple quickly agreed to a $32.5 mil­lion set­tle­ment and prom­ised to change its prac­tices to en­sure that chil­dren have their par­ents’ per­mis­sion for pur­chases. Amazon is ex­pec­ted to fight the case in court.

The com­pany sent a let­ter to the FTC last week, claim­ing that it has al­ways re­fun­ded pur­chases that cus­tom­ers didn’t want. An­drew DeVore, an Amazon as­so­ci­ate gen­er­al coun­sel, said that even at launch, the store in­cluded “prom­in­ent no­tice of in-app pur­chas­ing, ef­fect­ive par­ent­al con­trols and real-time no­tice of every in-app pur­chase.”

But Jes­sica Rich, the dir­ect­or of the FTC’s Bur­eau of Com­pet­i­tion, told re­port­ers on a con­fer­ence call that Amazon im­posed “obstacles” that pre­ven­ted many con­sumers from get­ting re­funds.

Ac­cord­ing to the com­plaint, Amazon didn’t even re­quire pass­words when it first in­tro­duced in-app pur­chases in Novem­ber 2011. The court doc­u­ment high­lights an in­tern­al com­mu­nic­a­tion in which an Amazon em­ploy­ee said the policy was “clearly caus­ing prob­lems for a large per­cent­age of our cus­tom­ers” and the prob­lem was “near house on fire.”

In March 2012, Amazon up­dated its sys­tem to re­quire pass­words for charges over $20, the FTC found. In 2013, Amazon re­quired a pass­word for more situ­ations, but only in June 2014 did the com­pany be­gin re­quir­ing pass­words for all in-app pur­chases, ac­cord­ing to the court doc­u­ment.

Amazon is the second com­pany to face a ma­jor FTC law­suit this month, fol­low­ing T-Mo­bile, which al­legedly placed bogus charges on con­sumers’ bills. 

Rich said both cases show the FTC is com­mit­ted to crack­ing down on com­pan­ies that fail to ob­tain “in­formed con­sent” be­fore billing cus­tom­ers. 

The FTC voted 4-1 to file the law­suit, with Re­pub­lic­an Com­mis­sion­er Joshua Wright dis­sent­ing. 

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