Amazon Billed Illegally for Kids’ App Use, U.S. Says

Amazon.com Inc. (AMZN) billed parents for millions of dollars of unauthorized mobile application purchases made by their children, the U.S. Federal Trade Commission said in a lawsuit, demanding the online retailer refund consumers.

Amazon violated federal law by failing to get parents’ permission for the charges, which triggered complaints from thousands of account holders, the FTC said in a statement about the lawsuit it filed today in federal court in Seattle.

“Amazon’s in-app system allowed children to incur unlimited charges on their parents’ accounts without permission,” FTC Chairwoman Edith Ramirez said in the statement. “Even Amazon’s own employees recognized the serious problem its process created.”

The Amazon lawsuit is the second enforcement action by the FTC against a company over unauthorized app charges by children. Apple Inc. reached a settlement with the agency in January, agreeing to refund consumers at least $32.5 million and to change its billing practices to get parental consent.

Amazon said in a July 1 letter to the FTC that it would fight the looming lawsuit. The company said it meets the billing practices standards imposed in the Apple settlement. The company, based in Seattle, said that it gave customers refunds for purchases children made without the account holder’s permission, according to the letter.

‘No Sense’

“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,” Amazon said.

When asked for comment on the suit, Amazon spokeswoman Rena Lunak referred to last week’s letter.

Senator Deb Fischer, a Nebraska Republican, said in a July 9 letter to the commission that its bid to regulate Amazon’s billing practices constituted “de facto tax on innovation that threatens future growth and opportunity.” The agency is attempting to gain “unchecked regulatory control” over the technology sector through its actions, she wrote.

Amazon’s game apps designed for children allowed users to spend “unlimited amounts of money” to pay for virtual items within the game without parental involvement, according to the FTC. Amazon keeps 30 percent of the charges, the agency said.

Clicking Buttons

The FTC cited as an example of parental complaints a consumer whose daughters spent $358 on unauthorized purchases. Another’s 6-year-old racked up charges by clicking buttons she couldn’t read, according to the complaint.

When Amazon introduced in-app charges in 2011, there were no password requirements for the purchases, according to the FTC. An Amazon employee noted the system was causing problems for customers, describing the situation as “near house on fire,” according to the complaint.

Amazon changed its system in 2012 and 2013. Not until June this year, shortly before the FTC voted in private to approve the lawsuit against Amazon, did the company change its in-app charging procedures to obtain account holders’ informed consent, the FTC said.

The case is Federal Trade Commission v. Amazon.com Inc., 14-01038, U.S. District Court, Western District of Washington (Seattle).

To contact the reporter on this story: David McLaughlin in Washington at dmclaughlin9@bloomberg.net

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net Fred Strasser, Joshua Gallu

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