Technology

Published on July 10th, 2014

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Amazon’s House on Fire

Thousands of consumers are due millions in refunds for unauthorized charges billed to their credit cards by Amazon.com for amounts racked up by their children playing apps, the FTC alleged in a lawsuit filed Thursday.

The suit, filed in Washington federal court, charges that Amazon’s set up allowed children playing kids’ games to spend unlimited amounts of money to purchase items as they played, such as coins or stars, without parents’ permission and that kids may not have been able to distinguish which items cost actual money and which cost virtual currency. Amazon keeps 30 percent of all in-app charges –which can range from 99 cents to $99 — and has a no-refund policy on these types of charges.

‘Not a hack but nearly as bad

One parent complained to the FTC that she was billed more than $300 in charges her daughter ran up. Another parent’s six-year old child pushed buttons at random and incurred charges on a gaming app.

Amazon

The commission said Amazon knew within a month of introducing the in-app charge system in 2011 that it was causing problems for customers and that internal emails described the situation as “near house on fire.” In March 2012 Amazon began requiring passwords to confirm in-app charges but only those exceeding $20. Last year, Amazon adjusted its in-app charge system to require passwords but sometimes the passwords were stored and customers weren’t always presented with the prompt, and even if they were, the prompt did not provide the amount of the charge, the FTC alleged in its suit.

One Amazon customer service representative told a parent, according to the suit:

It’s not a hack, but nearly as bad: it’s an in-game purchase. A user, such as a child, can easily misinterpret the option to spend actual money as just part of the game.

Basic consumer rights

FTC Consumer Protection Director Jessica Rich said the suit against Amazon is part of a continued effort by the agency to enforce a crucial tenant of consumer rights, which is that consumers should not be billed for charges without informed consent.

In March the FTC settled a similar complaint with Apple for allegedly unfairly charging parents for in-app purchases made by their children without their consent. Apple agreed to refund customers $32.5 million and change its billing practices. Rich said Apple is in the process of complying with that settlement.

Last week, the FTC filed a complaint against T-Mobile alleging it bilked customers out of hundreds of millions of dollars in a cramming scheme.

Amazon defended itself in a July 1 letter to the FTC and called the lawsuit “deeply disappointing.” Amazon Associate General Counsel and Vice President Andrew DeVore said:

In-app purchasing was and remains a new and rapidly evolving segment, and we have consistently improved the customer experience in response to data….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, and is an unfortunate  misallocation of the Commission’s resources.

While the FTC acknowledged that Amazon has refunded some customers who complained to the company, Rich said the commission is seeking full refunds for all affected consumers and a court order ensuring that Amazon will obtain permission before imposing charges for in-app purchases. It is also requesting Amazon give up the revenue it gained from these charges. The FTC, however, is not seeking penalties.

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