The App Store allows purchases for 15 minutes without re-requiring the password. FTC cracks down on Apple

Apple reached a settlement with the Federal Trade Commission on Wednesday over complaints that the company allowed children under 13 to buy things in mobile apps without parental consent.

As part of the settlement, Apple will refund customers at least $32.5 million and modify its billing practices.


“A basic principle of consumer protection is that a company must obtain a consumer’s informed consent before charging them for any goods and services,” FTC Chairwoman Edith Ramirez said at a news conference in Washington. “Apple fell short on that principle.”

In a statement, Apple said, “Protecting children has been a top priority for the App Store from the very beginning.”

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“Apple is proud to have set the gold standard for online stores by making the App Store a safe place for customers of all ages,” the company added. “Today’s agreement with the FTC extends our existing refund program for in-app purchases which may have been made without a parent’s permission.”

The FTC’s order centers on an Apple App Store feature that allows consumers to make purchases in an app for 15 minutes after it has been downloaded, without re-entering their password. That window allowed kids to sometimes rack up hundreds and even thousands of dollars in charges without their parents’ knowledge, according to the FTC.

Apple settled a class-action lawsuit in federal court over the same issue last year, which required the company to offer some refunds. But Ramirez said the FTC settlement is “more robust,” because it forces Apple to pay full refunds to any consumer who notifies the company about unauthorized charges, with no cap on the total amount paid out. It also requires Apple to make disclosures in its App Store about the 15-minute window before March of this year.

The commission took a “novel” approach to Apple, said Lisa Sotto, an attorney at Hunton & Williams. The FTC has no power to apply financial penalties in a case like this, but found a way to punish Apple by requiring the consumer refunds, she said.

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“It’s a backdoor way of hitting them over the head hard,” Sotto said. Apple could incur actual financial penalties later if it fails to comply with the FTC’s order by March, she said.

But not everyone thinks Apple is taking a hit with the settlement. The dollar figure involved may be high for the FTC, but it’s not much more than pocket change for Apple, said Charles Golvin, an independent industry analyst.

“With this particular settlement of $32.5 million – that’s the equivalent of change that you find in your couch [for Apple],” Golvin said. “The kind of black mark or publicity hit that they take is much more meaningful than the actual cash penalty that they’re going to have to pay. It’s much more about the public black eye – or even, here, just a slight bruise around the edge.”

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The settlement marks Apple’s latest brush with D.C. regulators. In an antitrust case brought by the Justice Department, a federal court last year found the company guilty of price fixing in the e-book market. The decision saddled Apple with a court-appointed monitor, which the company has been seeking to block.

The FTC was not unanimous on the Apple settlement. Ramirez had the support of Democrat Commissioner Julie Brill and Republican Commissioner Maureen Ohlhausen, but Republican Joshua Wright dissented from the order, saying the “overwhelming majority” of App Store users are aware of the charges they’re incurring.

“The Commission, under the rubric of ‘unfair acts and practices,’ substitutes its own judgment for a private firm’s decisions as to how to design its product to satisfy as many users as possible, and requires a company to revamp an otherwise indisputably legitimate business practice,” he said in his dissent.

In the end, the settlement is about ensuring clear disclosures about billing practices, Brill said.

“Material information about payment systems needs to be disclosed,” she said. “If you’re going to have a window when charges can be made without passwords, you need to let consumers know about that.”

Tony Romm contributed to this report.

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