Apple Settles with FTC, Will Refund at Least $32.5 Million in App Store Purchases

Apple has agreed to settle a complaint by the Federal Trade Commission (FTC) rather than fight it in court and will refund at least $32.5 million in purchases that were made by children in its iOS app store. The complaint dates back to 2011 and stems from Apple's inability to prevent children from making purchases on iPhones, iPods, and iPads without their parents' consent.

"Whether you're doing business in the mobile arena or the mall down the street, fundamental consumer protections apply," FTC chairperson Edith Ramirez said in a prepared statement. "You cannot charge consumers for purchases they did not authorize."

According to the FTC complaint, Apple tripped up in two main areas.

First, it didn't alert consumers that when they enter their password to authorize a purchase in the app store, subsequent purchases would continue to be authorized for 15 minutes before the password was required again. Thus, children could convince a parent to authorize a purchase and then—purposefully or not, but without their parent's express authorization—continue to make purchases for another 15 minutes.

Second, when Apple added in-app purchases to iOS apps, it jumpstarted a tenacious new market for free scam games that appeal specifically to children and require numerous in-app purchases. These games, which often take the form of mini aquariums, zoos, and other nonsense, are basically predatory attempts to get children to inadvertently spend more of their parents' money, and they are often designed to hide the fact that in-app purchases use real money.

(In fact, I was a trailblazer of sorts in that latter category: My kids spent almost $1,000 of real money on a terrible game in 2010 before a belated, emailed batch of Apple bills alerted me to the problem. I wrote about this episode in "So Easy Even a Child Can Do It.")

"Even after receiving at least tens of thousands of complaints about unauthorized charges relating to in-app purchases by kids, Apple continued to fail to disclose to parents and other Apple account holders that entry of a password in a children's app meant they were approving a single in-app charge plus 15 minutes of further, unlimited charges," Ms. Ramirez wrote in a statement.

According to the FTC, it received numerous complaints from consumers who collectively and inadvertently spent many millions of dollars because of Apple's policies, and the complaint cited several examples where individual families were bilked out of thousands of dollars each.

As a result of the settlement, Apple will refund at least $32.5 million in app and in-app purchases to consumers.

"It doesn't feel right for the FTC to sue over a case that had already been settled. To us, it smacked of double jeopardy," Apple CEO Tim Cook wrote in an internal email to employees. "But the settlement 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."

Actually, the settlement did force Apple to agree to one change it wasn't going to make on its own: The FTC is requiring the consumer electronics giant to alter its billing practices so that it explicitly notifies parents about the 15-minute window for additional purchases and in-app purchases.

And while Apple is the one under the microscope, that's only because the firm blazed the trail with app stores and in-app purchases. Any company that provides these services now—Amazon, Google, Microsoft, and others—should be paying attention to this settlement and changing its policies accordingly.