Amazon Must Issue Refunds, Not Gift Cards, To Parents Unfairly Billed For Kids’ In-App Purchases

Back in April, a federal court ruled that Amazon had not done enough to alert Kindle Fire owners — and users of Amazon’s Android appstore — that “Free” apps could still allow kids to make costly in-app transactions, but the ruling left unresolved exactly how much Amazon would need to pay to make customers whole again. Yesterday, the judge in the case determined that wronged Amazon customers must need to actively claim their refund, and that Amazon could not pay the refund in site credit or gift cards.

The Federal Trade Commission, which brought the complaint against Amazon in July 2014, had argued to the court that Amazon should pay a lump sum of nearly $27 million that would then be doled out to affected users.

However, the judge ruled yesterday [PDF] that there were too many questions about the way in which the government had arrived at those figures, and instead opted to go with a “notice-and-claims” process, wherein Amazon alerts potentially eligible customers via email that they may be due a refund. It will then be each customer’s responsibility to go to a dedicated page on the Amazon site to determine what, if any, refund they can receive.

Amazon wanted to provide refunds in the form of digital “gift cards” that would be applied to customers’ accounts. Under the company’s proposal, a customer could instead receive a refund check by mail, but only if they requested it.

The FTC had problems with Amazon’s proposal. First, the agency argued that the retailer was being too restrictive on which in-app purchases were eligible for refunds. Amazon wanted to exclude in-app purchases that were made after a customer had already received a refund for a previous in-app transaction made by a child. The company also sought to exclude in-app purchases made during certain times of day, or after a Kindle Fire user had been made aware of the Free Time feature on the device, which limits kids’ access.

With regard to the use of gift cards for refunds, the FTC argued that this could ultimately result in the return of revenue to Amazon. Additionally, the Amazon proposal includes no maximum or minimum amount the company would pay out in total to customers. The FTC suggested setting a floor of $12.2 million to hold the company accountable for its practices. If refund claims did not reach that amount, the difference would be paid to the government.

In the end, the judge sided with Amazon’s request for a notice-and-claim process, but without some of the exceptions the retailer was seeking. For instance, the court was not convinced by Amazon that it should not have to pay refunds to customers whose children continued to make unauthorized in-app purchases after the parent had received a refund for earlier unauthorized transactions.

“Amazon has not provided sufficient evidence that all consumers who received refunds were instructed about parental controls,” writes the judge. “In fact the evidence indicates that Amazon customer service agents did not always instruct or effectively educate customers about parental controls.”

The judge was likewise unmoved by Amazon’s contention that parents who had been made aware of the Free Time functionality on Kindle Fire should not receive refunds.

One exception that the court did grant to Amazon was for in-app purchases made in the middle of the night (2 a.m. – 6:00 a.m. Eastern Standard Time), as the judge concluded it was highly unlikely that such transactions were made by kids.

“Common sense dictates that the majority of people are asleep during these hours, particularly if they are children,” explains the ruling, which also said that the FTC’s request for a $12.2 million minimum was too speculative.

Amazon now has 90 days to send out the eligibility emails to the pool of affected users. Against Amazon’s wishes to limit most individual refund claims to $20, there will be no limit on this amount.

Rather than paying out the refunds in Amazon gift cards, the money is to be refunded to its source — usually a debit or credit card account. In cases where that’s not an option, paper checks can be sent.

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