Reflecting the agency’s stated interest in the mobile ecosystem, the Federal Trade Commission announced that Apple will pay a minimum of $32.5 million to refund consumers for charges incurred in mobile apps by children making purchases without parental consent.
According to the FTC’s complaint, users were presented with a screen requiring a password but were not informed they were making an in-app purchase. In addition, once the password was entered, a 15-minute window existed to make more purchases without having to reenter the password to finalize the purchase.
Failing to inform account holders of the window constituted an unfair and deceptive practice in violation of Section 5 of the Federal Trade Commission Act, the agency said. Apple also labeled apps as “FREE” in its App Store, even though the apps offered in-app purchases, a fact that was only disclosed in small print on a separate information page, the complaint alleged.
Some children managed to rack up hundreds of dollars of charges – which ranged from 99 cents to $99.99 for virtual items or currency in apps such as Tiny Zoo Friends and Dragon Story. One mother complained to the agency that her daughter spent $2,600 in a single app without her knowledge or consent. Apple received “at least tens of thousands” of complaints about unauthorized in-app purchases by children totaling millions of dollars, the FTC said.
Pursuant to the proposed settlement, Apple will pay consumers full refunds for either accidental or unauthorized in-app purchases made by children. The company promised to give notice of the availability of the refunds and pay them promptly. Apple must pay a minimum of $32.5 million in refunds; if that amount is not reached 12 months after the settlement becomes final, the FTC will receive the balance.
Apple also agreed to change its billing practices. As of March 31, 2014, the company said it will ensure that express, informed consent is obtained prior to charges for in-app purchases and will provide an option to withdraw consent for future purchases at any time.
Public comment on the deal is open until February 14. The vote to approve the proposed settlement was 3 to 1, with Commissioner Joshua Wright dissenting. “The Commission, under the rubric of ‘unfair acts and practices,’ substitutes its own judgment for a private firm’s decisions as to how to design its product to satisfy as many users as possible, and requires a company to revamp an otherwise indisputably legitimate business practice.”
Facebook settled a class action suit making similar charges last year. In that case, a California father alleged that his nine-year-old daughter spent $200 on in-app purchases for iPhone games. Class members received either a $5 iTunes gift card (those who no longer had an iTunes account received cash) or an iTunes gift card for the aggregate total of all in-app charges within a single 45-day period.
To read the complaint against Apple and the statement of the Commissioners, click here.
Why it matters: The settlement reemphasizes the agency’s concern with mobile issues and indicates its willingness to take action against one of the biggest names in the mobile industry and demand a sizable amount of consumer redress. From staff reports on mobile payments to enforcement actions against mobile cramming and spam texts, the mobile ecosystem remains a major area of interest to the agency.