Amazon.com is accused in a lawsuit filed Thursday of billing customers millions of dollars in charges racked up unknowingly by children. The Federal Trade Commission filed the lawsuit, which seeks to require refunds for parents and other account-holders and to ban the practice in the future.

The complaint alleges that when Amazon introduced in-app charges to the Amazon Appstore in November 2011, there were no password requirements of any kind on in-app charges, including in kids’ games and other apps that appeal to children. According to the complaint, this left parents to pay for charges they didn’t authorize.

Amazon officials did not immediately return a call for comment.

Several tech companies, including Apple Inc., have faced this problem with applications they sell and the devices that run them.

Amazon said in a letter sent to the FTC that the agency was looking to name terms similar to those it laid out in a suit against Apple. In that case, Apple had to refund at least $32.5 million to customers regarding mobile charges made by children.

Kids’ games, according to the complaint against Amazon, often encourage children to acquire virtual items in ways that blur the lines between what costs virtual currency and what costs real money.

In the app "Ice Age Village," for example, the complaint noted that children can use "coins" and "acorns" to buy items in the game without a real-money charge. However, they also can purchase additional "coins" and "acorns" using real money on a screen that is visually similar to the one that has no real-money charge. The largest quantity purchase available in the app would cost $99.99.
 
Consumer groups say young people aren't always aware how quickly costs can add up for extras such as "coins," "stars" and "acorns."

The lawsuit seeks a court order requiring refunds to consumers for the unauthorized charges and permanently bans the company from billing parents and other account holders for in-app charges without their consent.

Companies that create the games typically keep most of the money. However, the FTC's lawsuit claims that Amazon.com retains 30% of those charges made through apps it sells and through its devices, including the Kindle Fire.

Amazon offers many children’s apps in its appstore for download to mobile devices such as the Kindle Fire. In its complaint, the FTC alleges that Amazon violated the FTC Act by billing parents and other Amazon account holders for charges incurred by their children without the permission of the parent or other account holder.

"Amazon’s in-app system allowed children to incur unlimited charges on their parents’ accounts without permission," said FTC Chairwoman Edith Ramirez. "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.

"The complaint highlights internal communications among Amazon employees as early as December 2011 that said allowing unlimited in-app charges without any password was "…clearly causing problems for a large percentage of our customers," adding that the situation was a "near house on fire."

In March 2012, according to the complaint, Amazon updated its in-app charge system to require an account owner to enter a password only for individual in-app charges over $20. As the complaint notes, Amazon continued to allow children to make an unlimited number of individual purchases of less than $20 without a parent’s approval.

An Amazon employee noted at the time of the change that "it’s much easier to get upset about Amazon letting your child purchase a $99 product without any password protection than a $20 product," according to the complaint.

In July 2012, as set forth in the complaint, internal emails again described consumer complaints about in-app charges as a "house on fire" situation.

The complaint alleges that in early 2013, Amazon updated its in-app charge process to require password entry for some charges in a way that functioned differently in different contexts.

According to the complaint, even when a parent was prompted for a password to authorize a single in-app charge made by a child, that single authorization often opened an undisclosed window of 15 minutes to an hour during which the child could then make unlimited charges without further authorization.

Not until June 2014, roughly two and a half years after the problem first surfaced and only shortly before the FTC voted to approve the lawsuit against Amazon, did Amazon change its in-app charge framework to obtain account holders’ informed consent for in-app charges on its newer mobile devices, as explained in the complaint.

According to the complaint, thousands of parents complained to Amazon about in-app charges their children incurred without their authorization, amounting to millions of dollars of charges. For example, one mother noted in the FTC complaint told Amazon that her daughter was able to rack up $358.42 in unauthorized charges, while others complained that even children who could not read were able to "click a lot of buttons at random" and incur several unauthorized charges.

The company’s stated policy is that all in-app charges are final and nonrefundable. According to the complaint, even parents who have sought an exception to that policy have faced a refund process that is unclear and confusing, involving statements that do not explain how to seek refunds for in-app charges or suggest consumers cannot get a refund for these charges.

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