Apple Inc. has agreed to provide full refunds to consumers, paying a minimum of $32.5 million, 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.
Under the terms of the settlement with the FTC, Apple also will be required to change its billing practices to ensure that it has obtained express, informed consent from consumers before charging them for items sold in mobile apps.
“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. “You cannot charge consumers for purchases they did not authorize.”
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 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 or her password in a kids’ app without explaining to the account holder that password entry would finalize any purchase at all.
The rapidly expanding mobile arena has been a focus of the Commission’s consumer protection efforts. In addition to its consumer protection enforcement activity in the mobile sphere, last year, the FTC issued staff reports addressing mobile payments and providing recommendations for the mobile industry on how to protect consumers as new and innovative payment systems come into use, advocating improved privacy disclosures in the mobile environment, and addressing advertising disclosures in the context of mobile devices.
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.
The settlement requires Apple to modify its billing practices to ensure that Apple obtains consumers’ express, informed consent prior to billing them for in-app charges, and that if the company gets consumers’ consent for future charges, consumers must have the option to withdraw their consent at any time. Apple must make these changes no later than March 31, 2014.
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.
The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 3-1, with Commissioner Wright voting no. Chairwoman Ramirez and Commissioner Brill issued a joint statement, and Commissioner Ohlhausen issued a separate statement. Commissioner Wright issued a dissenting statement.
The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through Feb. 14, 2014, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section.
Comments in electronic form should be submitted online by following the instructions on the web-based form. Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.
NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.