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BREAKING NEWS: FTC Announces Major Settlement with Apple

Posted in Children, Federal Trade Commission

Written by Julia Siripurapu and Cynthia Larose

Apple Agrees to Pay Consumers At Least $32.5 Million to Settle Complaint of Unfair Billing Related to Children’s In-App Charges

FTC Chairwoman Edith Ramirez just announced (press conference) that Apple, Inc. (“Apple”) has agreed to provide consumers full refunds of at least  $32.5 Million Dollars to settle the Commission’s complaint alleging that Apple billed consumers millions of dollars in charges incurred by children in purchasing items that costs money within mobile apps for kids (“children’s in-app charges”), without parental consent.  While Apple sometimes requests a parent’s iTunes password when billing for children’s in-app charges, in many instances, Apple “caches” the iTunes password for 15 minutes after it is first entered and does not inform the parent that by entering the password, they are approving a charge or initiating a 15-minute window during which children using the app can make unauthorized purchases without further action by the parent. The FTC alleged that Apple’s failure to inform parents of this billing practice is a violation Section 5 of the FTC Act, 15 U.S.C. §45(a) and (n).  According to the complaint, Apple has been aware of these practices at least since March 2011 and the Commission has received tens of thousands of consumer complaints related to unauthorized charges for children’s in-app purchases.   The financial injury in this case isn’t speculative.  According to the complaint, one mother reported that her daughter’s clicks resulted in $2600 in unauthorized purchases in the “Tap Pet Hotel” app.  Others reported $500 in surprise in-app charges when kids played “Dragon Story” and “Tiny Zoo Friends.”

The settlement agreement requires Apple to send an electronic notice within 15 days after March 31, 2014 to all consumers who have been charged for in-app purchases prior to March 31, 2014 and who believe that the charge was incurred by a minor. As part of the settlement, Apple has also agreed to change its billing practices by March 31, 2014 to ensure that it obtains express, informed consent from consumers prior to charging for items sold within mobile apps. The settlement agreement is subject to public comment until February 14, 2014 after which the FTC will enter the final order. The FTC is also hosting a Twitter chat on the subject today at 2:00 PM.

Chairwoman Ramirez emphasized during the press conference that the $32.5 Million Dollars figure is only a floor and that there is no maximum penalty that Apple may be required to pay to achieve consumer redress. The Chairwoman also stated that the Commission’s settlement with Apple does not mean that the FTC is finished with Apple and that it will continue to actively monitor Apple’s practices as well as the mobile sphere in general.