Apple Caves to FTC for $32.5 Million

Previous class action settlement doesn't satisfy commission

The Federal Trade Commission apparently didn't think a $100 million class action settlement against Apple for unauthorized in-app charges made by children went far enough. Today, Apple entered into a consent decree with the FTC settling nearly identical charges that Apple failed to disclose to parents that kids could make purchases during a brief, 15-minute window after parents entered in their password.

As part of the settlement, Apple agreed to pay a minimum of $32.5 million to provide full refunds to consumers. The company also agreed to modify its billing and disclosure practices, even though it has already modified its purchasing process to address the class action suit.

The commissioners voted 3-1 to accept the consent decree. Commissioner Joshua Wright dissented.

In its complaint, the FTC charged that Apple engaged in an "unfair and deceptive practice" when it didn't inform parents that once they entered in their password it opened up a 15-minute window during which kids could rack up charges. In a press conference, chairwoman Edith Ramirez said the child of one consumer, who played games such as Smurfs' Village and My Horse, spent more than $6,000.

"The issue isn't Apple's 15-minute window, but that it didn't inform parents about the window," Ramirez said.

Even though the FTC's settlement is trivial for Apple—a company that has nearly $150 billion in cash—Apple CEO Tim Cook said the FTC's settlement "smacked of double jeopardy."

Because of the class action suit, Apple has already been sending refunds for in-app purchases that may have been made without a parent's permission. The company sent 28 million emails to Apple store customers and received 37,000 claims. "We will be reimbursing each one as promised," Cook said.

Ramirez defended the FTC's action against Apple as "more robust" than the class action suit. "The class action suit did not require Apple to change its practices. The class action suit placed limits on refunds; our order provides more redress for consumers," she said.

"The consent decree the FTC proposed does not require us to do anything we were already going to do, so we decided to accept it rather than take on a long and distracting legal fight," Cook said.

But Ramirez said that the problem with Apple has not been fixed. "They have until March to change practices. There are ongoing complaints," Ramirez said.

"The injury in this case is limited to an extremely small, and arguably, diminishing, subset of consumers," wrote Wright in his dissent. "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 indisputable legitimate business practice."