WASHINGTON (AP) — Plenty of parents have been there — handing over the iPhone or iPad to a child while waiting in the doctor's office, standing in line at Starbucks or sitting in the car for a long road trip with the family. The youngster is playing a game on a fun mobile app and then hands you the phone saying he needs your password. Next thing you know, there's a charge on your credit card from Apple.
Too often, parents were caught unaware that by entering their password they were authorizing purchases — of virtual pet treats, coins or perhaps a way to advance to the game's next level, the Federal Trade Commission said Wednesday in announcing that Apple Inc. had agreed to refund at least $32.5 million to unsuspecting parents.
The FTC received tens of thousands of consumer complaints. As part of the settlement, the FTC said Apple also must change its billing practices to make it more obvious that an actual purchase is taking place during the course of the game or app.
Apple CEO Tim Cook said the Cupertino, Calif.-based company relented to the FTC because the consent decree "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."
But according to the FTC complaint, Apple did not always make clear that they were buying something. Parents also were not told that entering the password started a 15-minute clock during which kids could make unlimited purchases without any further action by an adult, the agency said.
A single purchase generally can range from 99 cents to $99, the commission said.
One parent told the FTC her daughter had spent $2,600 in "Tap Pet Hotel," in which children can build their own pet lodging. The game is free to download and play, but it takes in-app purchases for bowls of treats and sacks of coins for the game.
The settlement involves all apps in which minors made unauthorized purchases.
It addresses the same issue raised in a class-action lawsuit that Apple resolved last year. In that case, Apple agreed to contact 28 million of its app customers to offer them a $5 store credit or a $30 cash refund if their children had spent at least that much money without parental consent. The deadline for filing a claim was Monday.
That settlement resulted in about 37,000 claims, according to Cook's memo to employees.
Apple's app store is a gold mine for software developers and the company, which charges a 30 percent commission on the transactions. Apple says its customers spent more than $10 billion on app transactions last year. That figure includes the price charged by some apps for the software, as well as revenue from purchases while playing a game or for some other extra service.
Children's applications sold in Apple's store generated about 44 percent of its revenue from purchases made while using the software during November, according to the latest data from the research firm App Annie. The remaining revenue came from upfront fees required to download some children's apps from Apple's store.
In the FTC case, the $32.5 million payout is a minimum. As part of the settlement, Apple must pay full refunds to consumers for kids' unauthorized purchases, so that figure could climb. If it doesn't rise to $32.5 million, the difference would be paid to the FTC, Ramirez said.