Pricey Apps

Amazon Apps Make It Too Easy for Kids to Open Parents' Wallets, FTC Says


Amazon.com's Kindle Fire HDX

Photograph by David Paul Morris/Bloomberg

Amazon.com's Kindle Fire HDX

The U.S. government believes Amazon (AMZN) has allowed children to rack up enormous bills for their parents by buying virtual items with real money within game apps.

“Account holders have suffered significant monetary injury, with thousands of consumers complaining about unauthorized in-app charges by their children, and many consumers reporting up to hundreds of dollars in such charges,” the Federal Trade Commission said in a lawsuit (PDF) filed on Thursday in U.S. District Court in Seattle.

Amazon retains 30 percent of revenue from in-app charges, “amounting to tens of millions of dollars to date,” according to the lawsuit, which also seeks customer refunds. Part of the issue is that many children—and their parents—mistakenly believed that the in-app purchases involved virtual currency, not real money. One mother cited in the lawsuit said her daughter “thought she was paying with acorns, but it seems to be hitting my credit card.”

In January, Apple (AAPL) agreed to refund at least $32.5 million to app users whose children had incurred charges. One child cited in the case had spent $2,600 on a single game, Tap Pet Hotel. The FTC had sought a similar agreement with Amazon, according to a letter Amazon sent the agency earlier this month, and the online retailer called the decision to file a lawsuit “deeply disappointing.”

“The Commission’s unwillingness to depart from the precedent it set with Apple despite our very different facts leaves us no choice but to defend our approach in court,” Amazon’s associate general counsel, Andrew DeVore, wrote to FTC Chairwoman Edith Ramirez. Amazon argues that its current practices on in-app purchases already meet the conditions outlined in the Apple settlement. “In-app purchasing was and remains a new and rapidly evolving segment, and we have consistently improved the customer experience in response to data,” DeVore wrote.

Amazon imposed a password requirement in 2012 for charges that exceed $20, according to the suit, which quotes a company apps manager saying that “it’s much easier to get upset about Amazon letting your child purchase a $99 product without any password protection than a $20 product.” Amazon began receiving complaints from customers in December 2011, the month after it introduced the charges within apps, the FTC says.

The lawsuit is the second the agency has filed this month in Seattle related to disputed charges on customer bills. The FTC also sued T-Mobile USA (TMUS), accusing the wireless carrier of “cramming” fraudulent text-message fees onto customers’ bills. T-Mobile says it quit the text-revenue business in 2013.

Bachman is an associate editor for Businessweek.com.

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  • AMZN
    (Amazon.com Inc)
    • $299.9 USD
    • 2.17
    • 0.72%
  • AAPL
    (Apple Inc)
    • $111.78 USD
    • -0.87
    • -0.78%
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