FTC Sues Amazon Over Kids' Unauthorized In-App Purchases

The Federal Trade Commission filed a complaint today arguing that the ecommerce giant allowed children to rack up charges on their parents' accounts without consent.

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By Catherine Clifford • Jul 10, 2014

Opinions expressed by Entrepreneur contributors are their own.

Amazon employees said they had a "house on fire" on their hands. And indeed they do.

The Federal Trade Commission filed a complaint in federal court today that claims Amazon allowed millions of dollars in in-app charges made by children without parental consent.

The suit alleges Amazon's in-app system permitted children to rack up unauthorized charges for purchases in apps such as "Ice Age Village," where players use real money to buy virtual acorns and coins for use in the game.

Related: Google to Offer Business Owners 2 TB of Free Storage for a Year

"Even Amazon's own employees recognized the serious problem its process created. We are seeking refunds for affected parents and a court order to ensure that Amazon gets parents' consent for in-app purchases," said FTC Chairwoman Edith Ramirez, in a written statement.

Amazon employees called the unauthorized billing dilemma a "near house on fire," according to internal emails the FTC found.

When kids download games on mobile devices, it is sometimes unclear which virtual items cost real money and which cost virtual money, the FTC statement says. In March 2012, Amazon required a parental password to spend more than $20 on a virtual item. Further, in 2013, a complaint against Amazon argued that even when a parent was prompted to insert a password, that would lift the veil, allowing kids to make charges without needing another password re-entry for anywhere from 15 minutes to an hour.

Related: How You, the Local Business Owner, Can Take on Amazon

One little girl had made $358.42 in charges through these applications without her mother knowing, according to the FTC statement. Charges made inside of an app are nonrefundable.

The FTC's litigation against Amazon follows a similar case that the U.S. regulators brought against Apple earlier this year. Apple settled the complaint for $32.5 million. "You cannot charge consumers for purchases they did not authorize," Ramirez said when Apple settled.

Apparently, Amazon still could.

Related: Google Gunning for Amazon With Expansion of Same-Day Delivery

Catherine Clifford

Senior Entrepreneurship Writer at CNBC

Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.

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