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Apple Settles With FCC For $32.5M Over Unauthorized In-App Purchases

January 16, 2014
Image Credit: Thinkstock.com

Bryan P. Carpender for redOrbit.com – Your Universe Online

Apple’s iDevices and App Store are so easy, even a child can use them. Now that simplicity is going to cost Apple a pretty penny.

On Wednesday, Apple agreed to settle a claim with the Federal Trade Commission (FTC), which requires Apple to refund $32.5 million to parents whose children racked up hefty tabs of in-app purchases. However, this is only the latest complaint regarding unauthorized charges surrounding children’s apps.

In 2011, FTC investigators responded to a flurry of consumer complaints from parents who were blindsided by charges on their credit cards, which resulted from their children playing games such as Tap Pet Hotel and Smurf’s Village. The initial cost of the children’s game apps wasn’t the cause for concern; it was the in-app purchases that allowed the kids to run up a tab, most likely without even knowing it.

These parents took their complaints to regulators and joined a separate class-action lawsuit against Apple, claiming that the company had knowingly approved games in the App Store that consistently enticed children to buy virtual coins or icons such as “Smurfberries” at an additional cost of anywhere from $0.99 to $500.00 per item.

Some children ran up thousands of dollars in charges in a single app. Their parents argued that young children do not fully comprehend that such in-app purchases require real money and Apple didn’t provide sufficient notification or protection.

A WINDOW OF OPPORTUNITY

Making matters worse was the fact that Apple had a 15-minute window during which unlimited in-app purchases could be made without having to re-enter a password – something they failed to tell users about. The FTC claimed that Apple unfairly deceived customers by allowing such in-app purchases without telling them about the window.

Normally, a user is required to enter a password for any purchase within the App Store. This 15-minute window meant that a child whose parent had just entered their password to purchase a game app for them could then make in-app purchases of virtual currency or other items. These items typically allow faster progression in the game, but it isn’t always clear to kids that these virtual coins cost real money.

VICTORY FOR CONSUMERS, OBJECT LESSON FOR APPLE

The settlement with the FTC requires Apple to refund all unauthorized payments to customers and sets a floor of $32.5 million. However, the final dollar figure could be considerably higher.

“This settlement is a victory for consumers harmed by Apple’s unfair billing, and a signal to the business community: whether you’re doing business in the mobile arena or the mall down the street, fundamental consumer protections apply,” said FTC Chairwoman Edith Ramirez in a statement. “You cannot charge consumers for charges they did not authorize.”

For its part, Apple claims it had already taken corrective measures prior to the FTC settlement. “Today’s agreement with the FTC extends our existing refund program for in-app purchases which may have been made without a parent’s permission,” said Steve Dowling, a spokesman for Apple.

Apple got rid of the 15-minute window in 2011. It has been actively negotiating with the FTC for the past several months, working to resolve this issue and Apple asserts that it has gone to great lengths to do right by customers who might have been affected by in-app purchases.

APPLE CEO RESPONDS

“Last year, we set out to refund any in-app purchase which may have been made without a parent’s permission. We wanted to reach every customer who might have been affected, so we sent emails to 28 million App Store customers – anyone who had made an in-app purchase in a game designed for kids. When some emails bounced, we mailed the parents postcards. In all, we received 37,000 claims and we will be reimbursing each one as promised,” said Tim Cook, Apple’s CEO in an email to Apple employees.

Cook reaffirmed Apple’s commitment to protecting children: “From the very beginning, protecting children has been a top priority for the App Store team and everyone at Apple. The store is thoughtfully curated, and we hold app developers to Apple’s own high standards of security, privacy, usefulness and decency, among others. The parental controls in iOS are strong, intuitive and customizable, and we’ve continued to add ways for parents to protect their children. These controls go far beyond the features of other mobile device and OS makers, most of whom don’t even review the apps they sell to children.”

The head honcho of Apple also criticized the FTC’s action:

“It doesn’t feel right for the FTC to sue over a case that had already been settled. To us, it smacked of double jeopardy. However, the consent decree the FTC proposed does not require us to do anything we weren’t already going to do, so we decided to accept it rather than take on a long and distracting legal fight.”

For its part, the FTC said the order goes beyond the class-action settlement. “We believe our settlement provides more robust relief,” Ramirez responded.

SENDING A MESSAGE

While the FTC settlement is specifically directed at Apple, it sends a clear message to app developers and especially to Google, whose Android OS doesn’t always require passwords for in-app purchases. The problem of unfair billing practices is coming under even more scrutiny and protecting children online is becoming a hot-button issue.

“Closing this loophole means children won’t be opening their parents’ wallets because they don’t comprehend the consequences of in-app purchases,” said Sen. Edward J. Markey (D-Mass.), a longtime consumer rights advocate. “As the use of mobile apps continues to escalate, I encourage the commission to continue to provide information to all consumers about the marketing and delivery of these applications, especially those targeted to children.”


Source: Bryan P. Carpender for redOrbit.com - Your Universe Online



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