FTC files federal complaint against Amazon

by: Natasha Chen Updated:

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SEATTLE - The Federal Trade Commission has filed a federal complaint against Amazon for unlawfully billing parents millions of dollars in children’s unauthorized in-app charges.

Before the filing, Amazon said that it is prepared to go to court against the Federal Trade Commission to defend itself against charges that it has not done enough to prevent children from making unauthorized in-app purchases. Thursday, KIRO 7 asked Amazon for a response to the filing, but the company has not responded.

The FTC alleged in a lawsuit Thursday morning that “just weeks after Amazon began billing for in-app charges, consumer complaints about unauthorized charges by children on Amazon’s mobile devices reached levels an Amazon Appstore manager described as ‘near house on fire’.”

Charles Harwood, the FTC regional director in Seattle, said “What we're alleging is that Amazon didn't do an adequate job of correcting the problem.”

The lawsuit alleges Amazon set up its payment system so children playing games could spend an unlimited amount of money to pay for virtual items within the apps, such as “coins,” “stars,” and “acorns” without parental involvement.

The lawsuit states: “Even parents who discover the charges and want to request a refund have faced significant hurdles in doing so.”

The FTC said Amazon received 30 percent of these in-app sales. Harwood added that these unintended charges added up to tens of millions of dollars.

Seattle-based Amazon.com Inc. said in a letter Tuesday to FTC Chairwoman Edith Ramirez that it had already refunded money to parents who complained. It also said its parental controls go beyond what the FTC required from Apple when it imposed a $32.5 million fine on the company in January over a similar matter.

Amazon's Kindle Free Time app can limit how much time children spend on Kindle tablets as well as require a personal identification number for in-app purchases, said Amazon spokesman Craig Berman.

"Parents can say — at any time, for every purchase that's made — that a PIN is required," he said.

But the FTC’s lawsuit alleges that in early 2013, Amazon’s update to its in-app charge process was not enough. According to the complaint, even when a parent was prompted for a password to authorize a single in-app charge made by a child, that single authorization could last 15 minutes to an hour, during which the child could make unlimited purchases.

The complaint states that only in June 2014, two-and-a-half years after the problem first surfaced, did Amazon change its system to require account holders’ informed consent for in-app charges on its newer mobile devices.

Merrie Williamson, a Seattle mom, said her daughter likes to play many of the free games available on Kindle or iPad. She said she needs to watch her daughter play, because there have been instances where she has caught her in the process of making an in-app purchase.

“14 It's really easier for her to do that on the Fire, in particular, because of this thread of recommendations,” Williamson said.

Ben Clifford, a Washington D.C. dad, said his two daughters bought in-app elements for a game called “Modern Girl,” resulting in hundreds of dollars on his credit card bill.

“The app offered in the app for them to buy bags of diamonds and bags of gold which they were way to happy to do,” Clifford said.

KIRO 7 tested some of the children’s games mentioned in the lawsuit. Some of them operated with a system where players could earn points, whether they be ‘stars’, ‘coins’ or other rewards. Then, the game would offer ways to buy these points.

“In many of these apps, sometimes you're using real money to buy things, and sometimes you're just using virtual money,” Harwood said. He said children would not know the difference.

Apple complained when the FTC announced its settlement with the company in January.

CEO Tim Cook explained to employees in a memo that the settlement did not require the company to do anything it wasn't doing already but he added that it "smacked of double jeopardy" because Apple had already settled a similar class-action lawsuit in which it agreed to refunds.

People who feel their children have made unauthorized purchases should first try to obtain a refund from the company.

If that process is unsuccessful, they should gather all documentation of the purchases and communication with the company. If a judge finds in favor of the FTC, there will be instructions on how to apply for a refund.