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FTC Sues Amazon for Billing In-App Purchases Made by Kids

The FTC is suing Amazon, claiming it billed accountholders for millions of dollars in what it termed unauthorized in-app charges incurred by children. The agency claims that Amazon’s setup allowed children to spend unlimited amounts of money to pay for virtual items – without parental involvement – within apps downloaded from its mobile appstore.

The government wants Amazon to refund accountholders for those charges, and it wants to permanently ban Amazon from billing accountholders “for in-app charges without their consent.”

Amazon spokesperson Erik Fairleigh referred EcommerceBytes to a letter Amazon’s counsel sent to FTC Chairperson Edith Ramirez on July 1st that said Amazon had refunded purchases in cases where customers complained; had continuously improved the customer experience; and was more than deeply disappointed about the FTC’s decision to file a complaint:

“The main claim in the draft complaint is that we failed to get customers’ informed consent to in-app charges made by children and did not address that problem quickly or effectively enough in response to customer complaints. We have continuously improved our experience since launch, but even at launch, when customers told us their kids had made purchases they didn’t want we refunded those purchase. And as we have made clear from the outset of your inquiry, our experience at launch was responsible, customer-focused, and lawful, including prominent notice of in-app purchasing, effective parental controls, real-time notice of every in-app purchase, and world class customer service.”

The complaint alleges that when Amazon introduced in-app charges to the Amazon Appstore in November 2011, there were no password requirements of any kind on in-app charges, including in kids’ games and other apps that appeal to children. And, the FTC said, “kids’ games often encourage children to acquire virtual items in ways that blur the lines between what costs virtual currency and what costs real money.”

According to the FTC lawsuit, Amazon’s in-app charges generally range from 99 cents to $99.99 and can be incurred in unlimited amounts. “Amazon controls the billing process for in-app charges and retains 30% of all revenue from in-app charges, amounting to tens of millions of dollars to date.”

FTC Chairperson Edith Ramirez said in a press 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.”

But Amazon also said in its letter it was constantly improving the customer experience in a new field. “In-app purchasing was and remains a new and rapidly evolving segment, and we have consistently improved the customer experience in response to data. That constant iteration on behalf of customers has produced no only an in-app purchasing experience that already meets the requirements of the Apple consent order, but the development of industry-leading parental controls like Kindle Free Time. We believe the Commission should promote that kind of iteration on behalf of customers.”

This is the FTC’s second case relating to children’s in-app purchases. It said Apple settled an FTC complaint concerning the issue earlier this year. The FTC lawsuit against Amazon is available in PDF format on the FTC website.

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Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). She is a member of the Online News Association (Sep 2005 - present) and Investigative Reporters and Editors (Mar 2006 - present). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com. See disclosure at EcommerceBytes.com/disclosure/.