FTC: Apple Will Refund $32.5M For Kids Unauthorized In-App Purchases

Apple has agreed to pay at least $32.5 million to settle an FTC complaint that the company billed for charges incurred by kids’ using mobile apps, but did so without their parents’ consent.

Under the terms of the settlement, announced Jan. 15 Apple also will change its billing practices to ensure that it has express, "informed" consent before charging them for items sold via mobile apps, which included virtual items or currency used in gaming.

The charges ranged anywhere from 99 cents to $99.99.

Parents did have to enter a password to allow their kids to make the in-app purchases, but according to the FTC, Apple failed to tell parents that by doing so, "they were approving a single in-app purchase and also 15 minutes of additional unlimited purchases their children could make without further action by the parent."

The FTC also pointed out that Apple had receives tens of thousands of complaints about unauthorized purchases.

Apple has until March 31, 2014 to ensure that it gets express informed consent for in-app purchases and give them the ability to withdraw that consent at any time.

If Apple gives consumers less than the $32.5 million the FTC has set as the full refund, the FTC gets the balance.

“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 purchases they did not authorize.”

The vote was 3-1. 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," Wright wrote in his dissent. "The Commission has no foundation upon which to base a reasonable belief that consumers would be made better off if Apple modified its disclosures to confirm to the parameters of the consent order. Given the absence of such evidence, enforcement action here is neither warranted nor in consumers’ best interest."

“The Federal Trade Commission’s investigation of Apple sheds light on a growing practice that poses risks to children and families,” said Jeff Chester, executive director of the Center for Digital Democracy and a long-time activist for better online protections for kids. “Children are spending increasing amounts of time with mobile apps, generating potentially huge profits for the rapidly expanding gaming and app industries. In-app purchasing is becoming the dominant business model in many online games and other children’s entertainment content on mobile phones, tablets and gaming devices. Yet the techniques used to trigger these purchases are, in many cases, unfair and deceptive, taking advantage of children’s vulnerabilities."

An Apple spokesperson was not immediately available for comment on the settlement.

Senator Ed Markey (D-Mass), a member of the Commerce, Science, and Transportation Committee, pointed out that back in February 2011 he had asked the FTC to investigate in-app purchases. He said the consent decree should "close the loophole that enabled companies to charge users, many of them children, for products and services after a mobile applications has been launched."

“I commend the FTC for taking action to protect consumers and especially children, who have little understanding of the real-life monetary impact of virtual purchases. I commend Apple for the changes it has made to address this issue,” Markey said. “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. I will continue to closely monitor this issue.” 

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.