FTC announces settlement with Apple over kids’ apps


FTC: Apple to refund kids' in-app purchases (Associated Press)

The Federal Trade Commission reached a settlement with Apple on Wednesday over charges that its App Store made it  made it too easy for children using kid-focused apps to rack up massive charges without parental permission.

In a press conference, FTC chairwoman Edith Ramirez said that Apple failed to tell parents that when they entered their passwords for the apps they were essentially authorizing payments. She said that children ran up millions of dollars in charges without their parents' consent.

Under the settlement, Apple must refund customers for all unauthorized payments. Those refunds should total at least $32.5 million to cover the charges, but could be much more, according to the FTC. If Apple's payments don't reach $32.5 million, the FTC will collect the difference. Apple is also required to modify its policies to make sure that consumers always know when they are being billed for in-app charges -- and that they can cancel that consent at any time. Apple must make those changes no later than March 31, the FTC said.

Apple does not have  to have an external monitor of its policies, as other firms settling with the FTC have had to in the past, nor does it have to clear changes to its policies with the agency.

Apple spokesman Steve Dowling said that the settlement continues work that Apple has already begun. "Protecting children has been a top priority for the App Store from the very beginning, and Apple is proud to have set the gold standard for online stores by making the App Store a safe place for customers of all ages," he said. "Today's agreement with the FTC extends our existing refund program for in-app purchases which may have been made without a parent's permission."

The Washington Post has reported that many children have racked up hundreds of dollars through in-app purchases because the company did not require users to enter their passwords every time they made a purchase. Apple used to only require that passwords be entered every 15 minutes. The firm changed the policy in March 2011 to curb those bills and keep in-app spending under control.

The settlement passed on a 3-1 vote, with Republican commissioner Joshua Wright opposing the settlement. In a dissenting opinion, Wright said that the benefits that Apple's platform provides to consumers outweigh the injury in this case and that consumers could have -- in some part -- avoided these issues by paying closer attention to their own privacy settings.

"The Commission has no foundation upon which to base a reasonable belief that consumers would be made better off if Apple modified its disclosures to confirm to the parameters of the consent order. Given the absence of such evidence, enforcement action here is neither warranted nor in consumers’ best interest," he wrote.

Apple has already settled a class-action lawsuit with parents who said the company's policy enabled their children spend money without permission. Apple sent notices to more than 23 million iTunes account holders and required users to prove that they were charged for in-app purchases made by a minor and had not given their account password to their children. In an e-mail to Apple employees obtained by technology blogs such as 9 to 5 Mac, Apple chief executive Tim Cook said that Apple has also received 37,000 claims for full refunds from consumers. Apple confirmed the e-mail.

In his message, Cook also said that it "doesn't seem right" for the FTC to sue the company over a matter it had already settled in court.

"To us, it smacked of double jeopardy," he told employees."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."

At the news conference, Ramirez said the commission believes that its order better serves consumers who lost money over the in-app charges because it requires full refunds rather than the partial refunds mandated by the lawsuit settlement.

"We believe our settlement provides more robust relief," Ramirez said.

Privacy advocates said that the FTC settlement was a good first step to developing clearer protections for  children and their families on digital devices.

Jeff Chester, executive director of the Center for Digital Democracy, said in a statement: "CDD commends today’s action by the commission. However, the agency should conduct a broad investigation of emerging techniques that target children on mobile, gaming and other platforms, and identify a set of industry-wide fair marketing guidelines.”

 

Hayley Tsukayama covers consumer technology for The Washington Post.
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