Apple will pay out $32.5M to settle FTC iTunes complaints

Apple today agreed to pay $32.5 million to settle complaints the Federal Trade Commission said the company billed consumers for millions of dollars of charges incurred by children in kids' mobile apps without their parents' consent.

"As alleged in the Commission's complaint, Apple violated this basic principle by failing  to inform parents that, by entering a password, they were permitting a charge for virtual goods or currency to be used by their child in playing a children's app and at the same time triggering a 15-minute window during which their child could make unlimited additional purchases without further parental action. As a consequence, at least tens of thousands of parents have incurred millions of dollars in unauthorized charges thatthey could not readily have avoided. Apple, however, could have prevented these unwanted purchases by including a few words on an existing prompt, without disrupting the in-app user experience," the FTC stated.

The settlement will also make Apple change its billing practices to ensure that it has obtained express, informed consent from consumers before charging them for items sold in mobile apps.

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The FTC's complaint alleges that Apple violated the FTC Act by failing to tell parents that by entering a password 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.

Apple offers many kids' apps in its App Store that allow users to incur charges within the apps. Many of these charges are for virtual items or currency used in playing a game. These charges generally range from 99 cents to $99.99 per in-app charge, the FTC stated.The complaint alleges that Apple does not inform account holders that entering their password will open a 15-minute window in which children can incur unlimited charges with no further action from the account holder. In addition, according to the complaint, Apple has often presented a screen with a prompt for a parent to enter his password in a kids' app without explaining to the account holder that password entry would finalize any purchase at all.

In its complaint, the FTC notes that Apple received at least tens of thousands of complaints about unauthorized in-app purchases by children. One consumer reported that her daughter had spent $2,600 in the app "Tap Pet Hotel," and other consumers reported unauthorized purchases by children totaling more than $500 in the apps "Dragon Story" and "Tiny Zoo Friends." According to the complaint, consumers have reported millions of dollars in unauthorized charges to Apple.

Under the settlement, Apple will be required to provide full refunds, totaling a minimum of $32.5 million, to consumers who were billed for in-app charges that were incurred by children and were either accidental or not authorized by the consumer. Apple must make these refunds promptly, upon request from an account holder. Apple is required to give notice of the availability of refunds to all consumers charged for in-app charges with instructions on how to obtain a refund for unauthorized purchases by kids. Should Apple issue less than $32.5 million in refunds to consumers within the 12 months after the settlement becomes final, the company must remit the balance to the Commission.

In a memo from Apple CEO Tim Cook, obtained by website 9to5Mac, Cook states:

"Last year, we set out to refund any in-app purchase which may have been made without a parent's permission. We wanted to reach every customer who might have been affected, so we sent emails to 28 million App Store customers anyone who had made an in-app purchase in a game designed for kids. When some emails bounced, we mailed the parents postcards. In all, we received 37,000 claims and we will be reimbursing each one as promised.

"From the very beginning, protecting children has been a top priority for the App Store team and everyone at Apple. The store is thoughtfully curated, and we hold app developers to Apple's own high standards of security, privacy, usefulness and decency, among others. The parental controls in iOS are strong, intuitive and customizable, and we've continued to add ways for parents to protect their children. These controls go far beyond the features of other mobile device and OS makers, most of whom don't even review the apps they sell to children.

It doesn't feel right for the FTC to sue over a case that had already been settled. To us, it smacked of double jeopardy. However, the consent decree the FTC proposed does not require us to do anything we weren't already going to do, so we decided to accept it rather than take on a long and distracting legal fight."

Interestingly, one of the FTC's own commissioners issued a dissenting opinion about the settlement.  

Commissioner Joshua Wright stated: "There is no disagreement that the overwhelming majority of consumers use the very same mechanism to make purchases and that those charges are properly authorized. The injury in this case is limited to an extremely smalland arguably, diminishing subset of consumers. 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. Given the apparent benefits to some consumers and to competition from Apple's allegedly unfair practices, I believe the Commission should have conducted a much more robust analysis to determine whether the injury to this small group of consumers justifies the finding of unfairness and the imposition of a remedy."

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