Apple Inc. agreed to refund customers $32.5 million to settle a complaint over mobile phone apps bought by children, prompting consumer advocates to call for a broader crackdown against deceptive practices by big wireless companies.
"This is a warning shot to the whole industry," said Jeffrey Chester, executive director of the Center for Digital Democracy. "This is not just about Apple. This is part of a comprehensive investigation of the entire mobile industry."
On Wednesday, the U.S. Federal Trade Commission said Apple would make changes to the way it notifies parents about so-called in-app mobile purchases as well as pay at least $32.5 million in customer refunds.
FTC Chairwoman Edith Ramirez emphasized that the mobile industry and mobile transactions had become a growing focus for the agency.
"Mobile technology has become part of our daily lives," Ramirez said. "But consumers should not have to sacrifice basic consumer protections to enjoy the benefits of new mobile technologies."
Chester noted that his advocacy group has been filing complaints about mobile transactions practices for four years. He said the appointment last summer of Jessica Rich, a lawyer specializing in privacy and data, to be director of the FTC's Bureau of Consumer Protection was a hopeful sign the agency was going to become more aggressive.
The FTC said in a press release that the "rapidly expanding mobile arena has been a focus of the commission's consumer protection efforts" and cited several actions it took last year involving mobile payments.
The latest complaint involved Apple's procedures notifying parents about in-app purchases, a feature that gives users the ability to buy additional items within the app.
Increasingly, many apps allow users to buy various virtual goods once the apps are installed on a smartphone or a tablet. To make such a purchase, Apple requires a user to re-enter the person's iTunes password for final approval.
At this point a child would have to hand the device to a parent to enter the password. What wasn't clear to many parents was that after entering the password, they were opening a window that would allow children to make additional purchases for the next 15 minutes before the password expired.
In some cases, parents said, their children went on to make thousands of dollars' worth of additional purchases in those windows without their approval. According to the FTC, Apple received tens of thousands of complaints from parents about unauthorized in-app purchases by children.
In one case, a parent said her daughter spent $2,600 playing the "Tap Pet Hotel" app. In another case, a child reportedly spent $500 in the "Dragon Story" and "Tiny Zoo Friends" apps.
Under the terms of the settlement, Apple has to refund payments to consumers affected and take steps to notify parents about the 15-minute window, though it doesn't necessarily have to eliminate the window.
The FTC announcement comes several months after Apple settled a class-action lawsuit over the same claims. Because of that agreement, Apple executives felt additional action by the FTC was unnecessary and unfair.
In a memo to employees that was obtained by the tech blog 9to5mac.com, Apple Chief Executive Tim Cook said: "It doesn't feel right for the FTC to sue over a case that had already been settled. To us, it smacked of double jeopardy."
But he pointed out that the agreement "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."
In their news conference, FTC officials noted that their agreement with Apple went beyond the previous settlement by requiring the notification change and by not placing a limit on the amount that could be refunded to affected customers.