Amazon should refund millions of dollars to parents charged for unauthorized purchases by their kids, the Federal Trade Commission says in a complaint it filed today at a U.S. District Court in Washington state. The agency is concerned about in-app orders in games, where it says Amazon keeps 30% of the charges. Kids often didn’t know that real money was involved when they played games for “virtual items within the apps such as ‘coins,’ ‘stars,’ and ‘acorns’ without parental involvement,” the FTC says. The problem goes back to November 2011 when Amazon introduced in-app charges to its Appstore, without password requirements. “Even Amazon’s own employees recognized the serious problem its process created,” says FTC Chairwoman Edith Ramirez. “We are seeking refunds for affected parents and a court order to ensure that Amazon gets parents’ consent for in-app purchases.”

Amazon told the FTC in a letter last week that it would defend itself against the charges, which it called “deeply disappointing.” Its policies were “responsible, customer-focused and lawful” and included “prominent notice of in-app purchasing, effective parental controls, real-time notice of every in-app purchase, and world-class customer service,” it says.

But the FTC complaint paints a different picture with the app for “Ice Age Village” which enables players to make virtual purchases for items in the game without charge using “coins” and “acorns.” The problem is that it also allows users to buy these coins and acorns “using real money on a screen that is visually similar to the one that has no real-money charge,” the FTC says. “The largest quantity purchase available in the app would cost $99.99.”

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4 months
This problem is compounded by "freemium" game design where the game is often designed to finagle real-world...

Amazon’s view, the FTC says, is that “all in-app charges are final and nonrefundable.” Parents who asked for exceptions “faced a refund process that is unclear and confusing, involving statements that do not explain how to seek refunds for in-app charges or suggest consumers cannot get a refund for these charges.” The complaint says that “thousands of parents complained to Amazon about in-app charges their children incurred without their authorization, amounting to millions of dollars of charges.”

By December 2011 Amazon employees said internally that the non-password charges were “…clearly causing problems for a large percentage of our customers,” and that the situation was a “near house on fire,” according to the complaint.

Amazon changed the system in March 2012 to require passwords for in-app charges over $20, but still enabled kids to make unlimited individual purchases below that threshold. The e-retailer made another change in early 2013 to require passwords for specific charges — but it sometimes “opened an undisclosed window of 15 minutes to an hour during which the child could then make unlimited charges without further authorization.” Amazon finally required informed consent for in-app charges last month, “shortly before the Commission voted to approve the lawsuit,” the agency says.