Apple (News - Alert), Inc. agreed to shell out $32.5 million in refunds to settle a Federal Trade Commission complaint that the company billed consumers for millions of dollars of charges incurred by children in kids' mobile apps without their parents' consent.
According to the FTC (News - Alert), Apple failed to notify parents that, if a password is entered when downloading an app, they were also allowing in-app purchases, which ran up a hefty charge for many due to a child making unlimited additional purchases. Tens of thousands of parents incurred millions in unauthorized charges that were, for all intents and purposes, unavoidable. Apple is to blame for its lack of prompts.
The settlement also makes Apple responsible for changing its billing practices to include informed consent from consumers before charging them for in-app purchases.
"This settlement is a victory for consumers harmed by Apple's unfair billing, and a signal to the business community: whether you're doing business in the mobile arena or the mall down the street, fundamental consumer protections apply," said FTC Chairwoman Edith Ramirez in a statement to the press. "You cannot charge consumers for purchases they did not authorize."
Apple has until March 31, 2014 to ensure that it gets express informed consent for in-app purchases and give them the ability to withdraw that consent at any time.
If Apple gives consumers less than the $32.5 million the FTC has set as the full refund, the FTC gets the balance.
Senator Ed Markey (D-Mass), a member of the Commerce, Science, and Transportation Committee, pointed out that he back in February 2011 he had asked the FTC to investigate in-app purchases. He said the consent decree should "close the loophole that enabled companies to charge users, many of them children, for products and services after a mobile application has been launched."
FTC Chairman Jon Leibowitz (News - Alert) responded to a concern dealing with how Apple advertises in-app purchases in games to children. Parents who allowed their children to use their iOS devices were surprised to find that their credit cards had amassed large sums of money due to “accidental” purchases, such as tokens and other items used for game play.
The Washington Post broke the story then about the in-app scheme, citing that popular games such as Smurf’s Village, were selling “pretend purchases” to kids while the little gamers were unaware of the real costs behind their supposed innocuous acquisitions.