Tech-Savvy Kids Costs Apple Millions, Forces change in iTunes Billing Practices

 

When you start having to key in your length iTunes password for every, individual purchase, you now know who to blame.  Following the conclusion of a three year investigation into Apple’s billing practices, the Federal Trade Commission announced yesterday that Apple will be paying at least $32.5 million to settle complaints over children racking up purchases in iPhone app games.  This move is in addition to an earlier settlement Apple came to last Summer, wherein they agreed to refund parent with iTunes credit, or cash, provided the parent could prove their kids made the purchase without their knowledge.

Following the conclusion of a three year investigation into Apple’s billing practices, the Federal Trade Commission announced yesterday that Apple will be paying at least $32.5 million to settle complaints over children racking up purchases in iPhone app games.

Both actions were in response to an outcry from parents who received startling credit card statements in the mail, claiming they owed hundreds of dollars in in-app payments to Apple for well-known games like Angry Birds and Smurf’s Village.  The culprit?  Not Apple, but the sweet-children of the phone’s owners themselves.   The tech-savvy tykes had apparently stumbled onto the fact that after the user’s password had been entered, say to install a free or $1 game like Angry Birds or Smurf Village, the iTunes Store then allowed unlimited purchases for a 15-minute period.  And with iTunes’ convenient access to stored credit card information, the kids did quite a bit of damage in that brief window.  One child spent north of £4,000, around $6500.  While other children were enticed to buy virtual coins, smurf-berries in Smurf Village, for as much as $500 an item.

To Apple’s credit, they did respond with the aforementioned settlement offer to the parents.  But this wasn’t good enough for the FTC, a fact that some Apple upper-management have taken umbrage with. Chief Apple Executive Tim Cook said the deal “smacked of double jeopardy,” but that the company did not choose to fight the FTC because their proposed sanctions did not require them to do “anything they weren’t already going to do,” in reference to the Summer-settlement.

With respect to Mr. Cook, this isn’t true, as the FTC’s settlement of $32.5 million puts a definite figure on the more nebulous refund policy, and is only a minimum value. The FTC Chair, Edith Ramirez clarified that unlike the Summer-settlement the FTC deal requires full customer repayment.  In effect this means that the FTC has only put a $32.5 million floor on Apple’s liability. If consumers do not submit $32.5 million within 12 months of the deal’s finalization, Apple would remit the remainder of the total to the FTC.

This minimum refund is accompanied by mandatory changes to the iTunes billing policy to ensure Apple has their customer’s consent prior to billing them for all in-app purchases.  And was hailed by Ms. Ramirez as a “victory for consumers harmed by Apple’s unfair billing,” and a strong signal that “you cannot charge consumers for purchases they did not authorize.”