Putting the Apple FTC Settlement in Perspective
By Simon Lerner
Putting the Apple FTC Settlement in Perspective
27 Jan 2014 - Delany & Co

A global issue

Stories of children overspending on in–app purchases have global currency at the moment. Media outlets, in the UK and elsewhere, have covered stories of children racking up large bills to the horror of their unsuspecting parents.

Regulators have taken note. In March, the UK’s consumer regulator, the OFT, launched an investigation into children overspending apps, culminating in a set of draft principles that guide games companies on consumer law compliance. A final version is due for release.

The ACCC, Australia’s equivalent of the OFT, followed suit with an investigation of its own and came out in support of the OFT’s principles in December.

The FTC Settlement

Apple’s January consent agreement package with the FTC is the latest turn of events. In the wake of complaints made as far back as 2010 and 2011 (when in-app purchases had just entered the market), the FTC began investigating unauthorised spending by children on Apple’s US App Store. The FTC subsequently alleged “unfair acts and practices” centered on Apple’s failure to properly inform users of a 15-minute app purchase window. After entering a password for initial transaction users can continue making purchases without the need to re-enter their password.

The FTC Commissioners voted 3-1 to accept the settlement package. Chairwoman, Edith Ramirez, announced “a victory for consumers harmed by Apple’s unfair billing and a signal to the business community”.

The agreement means Apple must fully refund consumers through paying a minimum of $32.5 million. It must also ensure that it has “Express Informed Consent” from consumers before they make in-app purchases. Analysts say Apple will either have to shorten its login window significantly or remove it altogether.

Apple CEO Tim Cook feels the FTC action is unfair. The company had already reached a court-sanctioned settlement with a class action from parents earlier in 2013. Apple sent out emails to some 28,000 App Store holders, asking for proof that minors had made purchases without access to their parent’s passwords. It will reimburse all 37,000 of the complaints it received as a result.

A sense of context

The FTC settlement involves big numbers, but do they really suggest big problem?

$32.5 million dollars is not a significant figure for a company valued in excess of $100 billion. In 2013 alone, Apple’s App Store generated $10 billion dollars in revenue. The initial FTC complaint speaks of millions of dollars of unauthorized charges and tens of thousands of consumers left out of pocket. Again, these numbers are marginal when you consider that Apple celebrated its 50 billionth App Store download in May 2013.

As the dissenting FTC commissioner Joshua Wright points out, the estimated value of harm caused to consumers represents about six one-hundredths of 1% of total Apple sales from 2009-2013.

The interest of consumers

It is common knowledge that Apple places emphasis on product design and functionality. It is in this context, rather than a means of deceiving consumers, that the 15-minute window should be understood.

The feature was introduced in 2008 to make it easier to make purchases. An overwhelming majority of consumers benefit from a more seamless user experience and do not want the inconvenience of having to constantly re-enter passwords.

It is also the case that since complaints came to light Apple has taken measures to refine its policy. In March 2011, Apple increased purchase steps so that there were separate passwords were required for the App Store (purchasing the initial app) and in-app purchases.

Parental responsibility

Parental responsibility cannot be left out of the equation. It should not be forgotten that Apple sends an email receipt to the iTunes account holder after a purchase has been made in the either the iTunes or App Store.

Some complaints involved circumstances where children gave computers back to their parents for password re-entry and others where the children knew their parent’s passwords themselves. Lack of knowledge, thought or possibly common sense could all factor in those instances.

Parental controls tools are readily available on Apple to remove in-app purchasing and create settings that require a password each time a purchase is made, which gets rid of the 15-minute window.

Parents are increasingly technology literate, and it seems patronising to imply that they are not capable of taking basic steps to control the way their children use their computer accounts.

Conclusion

For the games industry, the FTC settlement is not entirely negative. It shows that platforms are stepping up to the plate and accepting responsibility. A great deal of regulatory focus on app expenditure has so far been on games companies, which are often subject to the capabilities of the platform they operate on.

In focusing specifically on the issue of children and payment authorisation, the FTC has brought the discussion on point. Consumer investigations elsewhere have been initiated by reports of children overspending too much, but have often ended up discussing other areas such as marketing, in-game advertising and the freemium-pricing model itself.

The core issue remains kid’s spending money on their parent’s accounts. The problem is not limited to App Stores and is arguably an inherent risk of e-commerce where purchases are not made in physical person.

Yougov research says that 63% of children now have a phone before the age of 11, and 84% of 8 to 15 year olds had bought items online, or had someone else buy something online for them. The government plans to introduce financial education for secondary school. The British Bankers Association (BBA) and Personal Finance Education Group (PFEG) think it should happen earlier.

It remains important to avoid accusatory sensationalism when discussing in-app purchases and avoid assumptions based on the experiences of a minority. Parents, app developers and platforms must all share responsibility for children’s commercial activity on a rational and clear-sighted basis. Otherwise, it is the vast bulk of consumers who will lose out.

Photo Credit: The Street

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