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Wednesday, January 15, 2014
Apple To Pay $32.5 Million In Consumer Refunds to Settle FTC Complaint

Apple has agreed to provide full refunds to consumers, paying a minimum of $32.5 million, to settle a Federal Trade Commission complaint that the company billed consumers for millions of dollars of charges incurred by children in kids' mobile apps without their parents' consent.

Under the terms of the settlement with the FTC, Apple also will be required to change its billing practices to ensure that it has obtained express, informed consent from consumers before charging them for items sold in mobile apps.

The FTC's complaint alleges that Apple violated the FTC Act by failing to tell parents that by entering a password they were approving a single in-app purchase and also 15 minutes of additional unlimited purchases their children could make without further action by the parent.

Apple offers many kids' apps in its App Store that allow users to incur charges within the apps. Many of these charges are for virtual items or currency used in playing a game. These charges generally range from 99 cents to $99.99 per in-app charge.

The FTC's complaint alleges that Apple does not inform account holders that entering their password will open a 15-minute window in which children can incur unlimited charges with no further action from the account holder. In addition, according to the complaint, Apple has often presented a screen with a prompt for a parent to enter his or her password in a kids' app without explaining to the account holder that password entry would finalize any purchase at all.

Last year, Apple set out to refund any in-app purchase which may have been made without a parent's permission, according to an email sent today by Apple CEO Tim Cook to Apple employees. The company said it sent emails to 28 million App Store customers, and received 37,000 claims.

Cook said that although a federal judge had agreed with Apple's actions as a full settlement, the FTC got involved and Aple faced the prospect of a second lawsuit over the very same issue.

"It doesn't feel right for the FTC to sue over a case that had already been settled," Cook wrote. "To us, it smacked of double jeopardy. However, the consent decree the FTC proposed 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."

Today's settlement with FTC requires Apple to "modify its billing practices to ensure that Apple obtains consumers' express, informed consent prior to billing them for in-app charges," and that "if the company gets consumers' consent for future charges, consumers must have the option to withdraw their consent at any time." Apple must make these changes no later than March 31, 2014.

Under the settlement, Apple will be required to provide full refunds, totaling a minimum of $32.5 million, to consumers who were billed for in-app charges that were incurred by children and were either accidental or not authorized by the consumer. Apple must make these refunds promptly, upon request from an account holder. Apple is required to give notice of the availability of refunds to all consumers charged for in-app charges with instructions on how to obtain a refund for unauthorized purchases by kids. Should Apple issue less than $32.5 million in refunds to consumers within the 12 months after the settlement becomes final, the company must remit the balance to the FTC.

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