In-app and unapproved: FTC says Amazon charged parents' accounts without their OK

If there’s one theme that runs through decades of FTC law, it’s that companies need consumers’ informed consent to bill their accounts. That was true in the early days of mail order. It carried through to online shopping. And it remains the law for mobile devices, including in-app purchases. The FTC’s lawsuit against Amazon alleges the company didn’t honor that elementary principle. As a result, the FTC says thousands of parents were billed for unauthorized charges in kids’ apps.

Amazon sells apps through its Appstore, which is preloaded on Kindle Fire devices and available for installation on Android devices. Before it offers other companies’ apps, Amazon reviews them and assigns them to a category. The “Games” category has a subsection of apps for kids – for example, apps featuring cartoon animals or characters from popular animated movies. Amazon also divides apps by price, including a group advertised as “free.”  In exchange for offering other companies’ apps, Amazon slices itself a 30% piece of the pie.

Before users can install an app, Amazon requires them to link their device to an Amazon account usually funded by a credit card. Users can find apps by searching keywords or browsing the categories within the Appstore – for example, the kids’ section. The next step: clicking on the app icon, which takes people to a page with more details. On the left side of that page is a price button labeled either with a specific dollar amount or “FREE.”  To install the app, users press the price button and the screen displays “Get App.”  If pressed again, the app is installed.

In November 2011, Amazon started to allow in-app purchases. Many of the kids’ apps, including the “free” ones, invited kids to get stuff – for example, “stars,” “acorns,” or “coins” – to enhance game play. However, the FTC says there were a series of problems. According to the complaint, how Amazon chose to set up the payment process meant that kids could incur charges without their parents’ knowledge. The result: With just a click or two, kids could place charges on their parents’ accounts without approval.  Moms and Dads were shocked to find out that every click added a charge of between 99 cents and $99 to their credit cards.

And parents weren’t the only ones alarmed by this. Within a month after Amazon started allowing in-app charges, one if its own project managers acknowledged the problem, stating, “[W]e believe that parents are excluded from the buying process for these apps.”  An internal email commented that Amazon was “clearly causing problems for a large percentage of our customers,” and described it as a “near house on fire” situation.

How did Amazon respond to the thousands of complaints it received? You’ll want to read the FTC lawsuit for the details, but beginning in March 2012, the company started making a few nips and tucks to its system for in-app purchases – tweaks the FTC says didn’t adequately address the problem. For example, the company began to require a password to confirm individual in-app purchases over $20, but made no change for individual purchases below that amount. Why that cut-off? According to one internal document, “it’s much easier to get upset about Amazon letting your child purchase a $99 product without any password protection than a $20 product.”

Amazon didn’t implement any other password requirement for in-app purchases until 2013. But even that modification added a problematic new wrinkle, according to the FTC. Amazon changed its system so that when parents typed in their password to authorize a single purchase, the company opened a 15-minute “put it on my tab” window for kids to buy stuff without authorization from Dad or Mom. It wasn’t until June 2014 that Amazon changed its method to require informed consent for in-app charges on newer mobile devices. That was long after parents – and Amazon’s own employees – started sounding the alarm.

What about parents who tried to get their money back? The FTC says Amazon set up hurdles that made that difficult, including a prominent “all app sales are final” policy.

“But aren’t parents responsible for their kids?” some people may ask. Of course, but the FTC says it was Amazon’s responsibility to clearly disclose to account holders how its payment system worked. Instead, the complaint alleges that Moms and Dads weren't told that a kid's few random clicks would result in charges to the parent’s accounts.

The lawsuit alleges that Amazon’s conduct was an unfair practice under Section 5 of the FTC Act.  Follow the case as it goes to trial in federal court in Seattle.