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FTC Sues Amazon over In-App Purchases by Children

FTC Sues Amazon over In-App Purchases by Children
By Jef Cozza

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Amazon changed its Appstore in March 2012 to require account owners to enter a password for in-app charges, but only for purchases above $20. The FTC said Amazon made another change in early 2013 that allowed children to make unlimited purchases for up to 15 minutes following an authorization for a single purchase by a parent.

The Federal Trade Commission filed suit Thursday against Amazon, alleging the retail giant made it too easy for minors to ring up millions of dollars in unauthorized in-app purchases. The suit, filed in the U.S. District Court of Western Washington, seeks refunds for parents whose children made purchases, and a court order that would require Amazon to get parental consent before future purchases.

"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."

'House on Fire'

According to the suit, Amazon began receiving complaints from parents just weeks after it began billing for in-app purchases. One Amazon Appstore manager described the number of complaints as being "near house on fire." As early as December 2011, the manager said the practice of allowing the charges to be made without any password was "clearly causing problems for a large percentage of our customers." Thousands of consumers eventually complained about the charges, the FTC said.

The Seattle-based company offers apps through its Appstore, a digital store preloaded on the Kindle Fire, which provide services such as the ability to watch TV shows, check the weather, or play games. Amazon receives 30 percent of the revenues from in-app purchases, which can range from $0.99 to $99.99, and can be incurred multiple times. Amazon also charges users for certain activities within the apps, including games that children may play.

The FTC complaint alleges that children are often encouraged to acquire virtual items within the games, with the difference between virtual currency and real money often blurred. 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.

Playing with Fire

Amazon eventually changed its Appstore in March 2012 to require account owners to enter a password for in-app charges, but only for purchases above $20. According to the FTC, the company made another update to its store in early 2013 which would allow children to make unlimited purchases within an app for up to 15 minutes following an authorization for a single purchase by a parent. Amazon only began to require informed consent for in-app purchases last month.

The commission said it received complaints that even children who could not read could rack up charges simply by hitting buttons at random, and one mother complained her daughter was able to incur almost $360 in unauthorized charges.

Andrew DeVore, Amazon vice president and associate general counsel, said in a letter to the FTC chairwoman that the company had refunded charges from complaining customers, and that it has included effective parental controls in the system since its launch.

"Pursuing litigation against a company whose practices were lawful from the outset…makes no sense," DeVore said.

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