Apple Settles With FTC After Kids Blow Millions On The App Store

Apple agreed to settle with the Federal Trade Commission on Wednesday after a formal complaint said the company was billing customers for millions of dollars worth of App Store purchases made by children without their parents’ consent.

The initial complaint, filed January 15, alleged Apple was in violation of the FTC Act by not informing parents that once they initially entered their Apple ID username and password combination to purchase an app or an in-app item, their iOS device would approve any further purchases for the next 15 minutes without asking for further authorization.

The FTC said in its complaint that Apple did not inform iOS App Store users about the 15-minute window that allows for unlimited charges, and as a result, Apple received tens of thousands of complaints about unauthorized purchases made by children. In one case, a little girl spent $2,600 worth of in-app purchases in the game “Tap Pet Hotel,” while the report mentioned other children making purchases totaling over $500 in apps like “Tiny Zoo Friends” and “Dragon Story.”

Apple CEO Tim Cook sent a letter to his staff about the settlement, which was procured by Re/code. In the letter, Cook defended the App Store’s 15-minute policy, claiming it was originally “aimed at making the App Store easy to use.” But after parents discovered their children racked up credit card charges in free games that offered in-app purchases and subsequently filed a class action lawsuit in 2011, Apple “moved quickly to make improvements,” even adding a few additional steps to the purchasing process in the App Store.

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.

Apple settled its class action lawsuit last February, offering iTunes credits to parents and the option to receive a cash refund for claims over $30. But the FTC decided to step in anyway.

“It doesn’t feel right for the FTC to sue over a case that had already been settled,” Cook said in his letter. “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.”

Apple agreed to provide full refunds to parents affected by their children’s purchases, promising a payout of at least $32.5 million. As part of the deal, the company has until March 31 to reform its billing practices. Apple in the future must also offer an option shut down the 15-minute authorization window that allows app users to buy in-app purchases without entering credentials.

“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,” FTC Chairwoman Edith Ramirez said in a statement. “You cannot charge consumers for purchases they did not authorize.”

Image via Cristiano Betta on Flickr