Amazon Found Liable For Unfairly Billing Parents For Kids’ In-App Purchases

There’s a time-tested rule that if someone gives a child an easy way to unwittingly spend your money, you will soon be looking at a thick bill containing a large number of tiny purchases. Today, a federal court ruled that Amazon failed to do enough to alert Kindle Fire owners — and users of Amazon’s Android appstore — that “Free” apps could still allow kids to make costly in-app transactions.

The Federal Trade Commission sued Amazon in 2014, alleging that the online retail giant unfairly billed parents for millions of dollars in unauthorized in-app purchases made by their children.

Amazon defended its policies, saying the company had refunded money to customers who complained about kids who didn’t realize they were spending real money by purchasing a “boatload of doughnuts” or a “can of stars.”

However, the FTC countered that not only should parents have been made more aware that they were effectively handing their debit cards over to their kids, but that Amazon’s complaint-and-refund process was “unclear and confusing.”

In granting the FTC summary judgment [PDF], the court noted that in Amazon’s original appstore layout, disclosures of in-app purchases were buried about two-thirds of the way into the detailed description of each app.

Responding to complaints and concerns from regulators, Amazon introduced a password requirement for in-app purchases of $20 or more. However, smaller amounts didn’t trigger the need to enter a password, meaning kids could mass significantly more than $20 in purchases by making multiple, small-dollar transactions.

After learning of an FTC investigation into in-app purchases, Amazon added new rules: requiring a password if a transaction was made within five minutes of a previous one, or if parents opted into to restrictions for purchases. Kindle devices began including the Free Time feature, which disabled in-app purchases.

Subsequently, Amazon began tagging relevant apps with the phrase “In-App Purchasing,” but as the court notes:

The words, “In-App Purchasing” are smaller than the remainder of the text on the screen and in the same font and color. Notably, though the words “In-App Purchasing” represented a clickable hyperlink which users could click on to learn more about in- app charges, the lettering is not presented in such a way as to make that obvious, such as setting the words in a different color or underlining them.

Later updates to Amazon devices and the appstore have increased the transparency regarding in-app purchases, which is why the court did not grant the FTC’s sought-after injunction in this case. The only devices that may still allow for unfettered small-dollar purchases are first-generation Kindle Fire tablets, which have not been sold for four years.

Amazon argued that monetary injury was minimal in this case because of the company’s refund policy, but the court was not convinced.

“Amazon’s argument conflates complaints with the total universe of injury,” writes the judge. “However, given the design of the Appstore and procedures around in-app purchases, it is reasonable to conclude that many customers were never aware that they had made an in-app purchase.”

Additionally, the judge notes that the refunds provided to customers does not account for the time and effort those users had to put into making their case to Amazon.

The judge was equally unmoved by Amazon’s claim that customers should have known about the in-app purchases and that they were “reasonably avoidable,” noting that “it is unreasonable to expect customers to be familiar with the potential to accrue in-app purchases while using apps labeled as ‘FREE.'”

The court concluded that Amazon incorrectly assumed that its users were familiar with the concept and risks of in-app purchases, just because they were familiar with the concept of online shopping.

Writes the judge: “online shopping and spending real currency while obtaining virtual items in a game are completely different user activities.”

The judgment does not specify monetary relief. Instead, it instructs both Amazon and the FTC to provide more detailed information regarding the precise amount that should be refunded to consumers.

“We are pleased the federal judge found Amazon liable for unfairly billing consumers for unauthorized in-app purchases by children,” said FTC Chairwoman Edith Ramirez. “We look forward to making a case for full refunds to consumers as a result of Amazon’s actions.”

In Jan. 2014, Apple settled similar claims with the FTC regarding in-app purchases, resulting in more than $32 million in refunds for affected iOS users.