Amazon Sued by FTC over Mobile App Purchases Made by Children - Analyst Blog


Giant online retailer, Inc. ( AMZN ) has been sued by the Federal Trade Commission ("FTC") for allowing unauthorized in-app purchases by children on Amazon devices.

The FTC has filed the suit in Washington's District Court, presenting the details of an overwhelming number of complaints from parents for unauthorized virtual goods purchases from Amazon's Appstore that have cost them up to hundreds of dollars.

The FTC is seeking a ban on Amazon for unlawfully billing parents for the unauthorized in-app purchases without their consent. It also seeks a refund to the affected customers.

The lawsuit was filed after Amazon refused to comply with the FTC's proposed settlement terms under which it asked the company to update some of its policies by making in-app purchases safe with passwords for every purchase, clearer notification of additional charges and easier refund policies.

Amazon had also written to the FTC stating that it would not comply with the regulatory agency's demands to exercise more stringent policies that would prevent children from making in-app purchases.  Amazon said that it is prepared to defend its policies in court as it believes that it has already done plenty to prevent kids from making unauthorized in-app purchases from its devices.

Amazon also said that it intimates customers about in-app purchases and sends immediate notifications to cardholders. It has always reimbursed the money to affected customers. Amazon had also updated its in-app charge process in June to get permission from account holders for purchases on mobile devices. It also asserted that its practices reflect the standards set by the FTC in the Apple ( AAPL ) settlement.  

Earlier this year, the FTC had sued Apple over similar concerns.  However, unlike Amazon, Apple reluctantly settled with the FTC by agreeing to repay at least $32.5 million that was to be distributed to customers, whose children made in-app buys without their parents' permission. It also used new App Store safeguards to ensure parental consent while making virtual purchases.

Purchases of digital goods are the reason behind the success of app stores of Amazon, Apple and Google Inc. ( GOOGL ). These app stores boost usage and sales of smart devices. Since they also have credit card and other user records, there is a need for stringent policies that could protect customers from paying for unauthorized uses, especially by kids.

Moreover, in-app purchases have turned out to be important sources of revenue for mobile developers who offer their applications for free download. Amazon gets a 30% commission from in-app purchases. Therefore, if found guilty, it can adversely affect the company's revenues in the future.

Amazon shares currently carry a Zacks Rank #5 (Strong Sell). PetMed Express, Inc. ( PETS ), is a better-ranked stock carrying a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: PETS , AMZN , AAPL , GOOGL

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