The US Federal Trade Commission (FCC) has filed a lawsuit against mighty online etailer Amazon, claiming the business's in-app purchase system wrongly charged consumers millions of dollars.

The suit also claims Bezos & Co knew about the problem and did nothing to rectify it.

"As internal emails uncovered in our investigation reveal, immediately after Amazon introduced in-app charges its own employees advised that Amazon was 'clearly causing problems for a large percentage of our customers,' even referring to the problems as 'near house on fire'," FTC consumer protection director Jessica Rich told a press conference on Thursday.

"That happened in December 2011, right after Amazon started in-app charges. According to the complaint even seven months later Amazon employees again discussed the 'house on fire' situation. For years, despite this very real consumer issue Amazon also allowed children to run up unlimited charges without their parent's knowledge or permission."

In March 2012, Amazon changed its systems to require parental consent for in-app purchases over $20, while allowing unlimited purchases below that figure. Typically, these purchases are for weapons, power-ups and other gumble in games on mobiles and tablets.

An email obtained by the FTC says one employee noted "it's much easier to get upset about Amazon letting your child purchase a $99 product without any password protection than a $20 product," the court documents [PDF] state

A year later, Amazon tweaked its in-app purchasing system again, but the FTC claims that even this modification was opaque. For example, while a password was required for some in-app purchases, doing so opened up a purchasing window of between 15 minutes to an hour for further purchases after initial consent had been given.

That, we're told, was ample time for kids to spend much more of their parents' cash than expected.

Thousands of Amazon customers complained to the web biz and the FTC about the company's charges, and this prompted the watchdog's action.

"Amazon has received thousands of complaints related to unauthorized in-app charges by children ... amounting to millions of dollars of charges," the lawsuit paperwork states.

The regulator is not seeking a fine from Amazon – just a sum that can be used to refund customers who have been hit with unauthorized charges, and used to enforce formal oversight of the company's practices for an unspecified period.

Amazon has always said that in the event of unauthorized charges it provides full refunds. But Rich claimed that the refund process was "unclear and confusing," and placed many hurdles in the way of those seeking reimbursement.

This is the second case the FTC has brought against technology firms over in-app purchases: Apple settled its case with the agency in January and agreed to pay a $32.5m fine and accept 20 years of federal oversight. Amazon said last week that it would not accept a similar fate, and will fight its case in court.

Rich denied that the FTC was gunning exclusively for technology companies, saying bricks-and-mortar businesses that aren't transparent about giving consent for charges will also be prosecuted if they did not give consumers informed consent for billing.

Nevertheless, Google is likely to be next in the FTC's sights over in-app purchasing. Apple has reportedly fingered the advertising goliath to the FTC and, when questioned on the issue, Rich refused to confirm or deny that the Chocolate Factory in under investigation.

Amazon was unavailable for comment at time of going to press. ®