Amazon Fighting FTC Suit Alleging Unfair Practices
By Christine Kern, contributing writer
Amazon stands behind its practices, states that it is not in the wrong
The FTC has filed a lawsuit against Amazon claiming that the company unlawfully billed parents millions of dollars since 2011 in in-app purchases made by children.
The complaint, filed by the FTC in U.S. District Court in Washington state, alleges that thousands of parents — including one consumer whose daughters racked up $358 for in-game charges — fell victim to a system that allows charges without any step "that requires a password to validate payment information."
The complaint argues that many of the kid-friendly games and apps on Amazon mobile devices such as the Kindle Fire encourage children to pay for virtual in-game items with real-world money, usually connected to their parent's credit card.
The FTC is seeking a court order requiring Amazon to refund customers for "millions of dollars" in unauthorized charges and to ban the company from billing parents for in-app charges made by children without parental consent.
According to the suit, there is not adequate password protection stopping children from making purchases, and that “kids’ games often encourage children to acquire virtual items in ways that blur the lines between what costs virtual currency and what costs real money.”
“Amazon’s in-app system allowed children to incur unlimited charges on their parents’ accounts without permission,” said FTC Chairwoman Edith Ramirez in a statement. “Even Amazon’s own employees recognized the serious problem its process created. We are seeking refunds for affected parents and a court order to ensure that Amazon gets parents’ consent for in-app purchases.”
The FTC highlights internal employee communications that drew attention to the problem with employees stating that the situation was “…clearly causing problems for a large percentage of our customers,” and that the situation was a “near house on fire.”
“Amazon’s setup allowed children playing these kids’ games to spend unlimited amounts of money to pay for virtual items within the apps such as “coins,” “stars,” and “acorns” without parental involvement,” the FTC states.
Amazon, meanwhile, pockets 30% of each transaction.
"We are really trying to make clear that this cardinal rule … of consumer protection applies in the mobile space," Jessica Rich, FTC consumer protection director, said in a conference call with reporters.
Rich said Amazon had received thousands of complaints and millions of dollars in revenue from accidental app purchases.
On July 1, in a letter to the FTC, Amazon said it has continually improved the in-app buying process since launch and already offers refunds when children make inadvertent in-app purchases.
"Pursuing litigation against a company whose practices were lawful from the outset and that already meet or exceed the requirements of the Apple consent order makes no sense," Amazon said in the letter.
In 2012, according to the FTC, passwords were required for purchases over $20, but by 2013 “Amazon updated its in-app charge process to require password entry for some charges in a way that functioned differently in different contexts” often leaving windows after a password was entered for further purchases to be made without parental involvement or consent.”
According to the FTC, Amazon’s policy is that all in-app purchases are final and non-refundable. The FTC has filed a lawsuit seeking refunds for all affected consumers and changes to Amazon’s policies. The FTC settled a similar lawsuit with Apple earlier this year.