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Apple Settles FTC Dispute for $32.5M

Apple Settles FTC Dispute for $32.5M
January 15, 2014 12:24PM

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Settling with the FTC over kids' App Store purchases is good PR for Apple and money well spent. Apple is a trusted brand. It wants people to think of the App Store as a place where every family member can go safely. Not settling with the FTC would make Apple look like a company that takes advantage of kids and foolish parents, said analyst Rob Enderle.

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Apple has agreed to refund at least $32.5 million to parents of children who made in-app purchases without the consent of mom and dad. The refund will settle a Federal Trade Commission (FTC) complaint about the practice.

Under the terms of the FTC settlement, Apple also will be required to change its billing practices to make sure it obtains 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.”

Violating FTC Act

Here’s the backstory: The FTC’s complaint alleges that Apple violated Section 5 of the FTC Act by failing to tell parents that by entering passwords they were approving single in-app purchases as well as 15 minutes of additional unlimited purchases their children could make without further action by the parents.

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 fees 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 passwords will open a 15-minute window in which children can incur unlimited charges with no further action from the account holders. What’s more, the complaint alleges 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.

Running Up a Bill

We caught up with Rob Enderle, principal analyst at The Enderle Group, for his take on the settlement. He told us, ultimately, settling is good PR for Apple and money well spent.

“Apple is a trusted brand. They want people to think of the App Store as a place where every member of the family can go safely. Getting the image of a company that takes advantage of kids and foolish parents would not be good for their brand,” Enderle said. “You can run up significant bills on free games real quick. Kids don’t have any sense of cash. I imagine some of those kids ran up bills of hundreds if not thousands of dollars.”

Enderle is right. In its complaint, the FTC noted 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.

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