In 2011, Glynnis Bohannon’s 12-year-old son handed her $20. In exchange, she let him use her credit card so he could spend $20 on “Facebook Credits” to use in the Ninja Saga game.
At least, that’s how much he, and she, thought they were spending. A year and nearly a $1,000 worth of credit card charges later – he didn’t know that virtual currency came with a real-world cost – Ms. Bohannon and another exasperated, cash-sapped parent filed a class action lawsuit against Facebook.
Facebook was ordered to refund parents when the suit was settled in 2016, but the repercussions are still rippling out after a court granted a request to unseal the legal documents, made by the Center for Investigative Reporting (CIR).
On Thursday, more than a dozen groups that advocate for children’s rights said they’re asking the Federal Trade Commission (FTC) to investigate whether Facebook has engaged in illegal, unfair or deceptive practices by enticing children to spend money on in-game purchases without their parents’ consent.
After looking over 135 pages of documents unsealed last month, the CIR says that internal Facebook memos, “secret strategies” and employee emails paint what it calls a “troubling picture” of how Facebook conducted business between 2010 and 2014.
The judge allowed Facebook to keep some documents sealed. What’s come into the light of day paints an extremely unflattering portrait of the company, and that’s saying a lot for Facebook.
Some of the unsavory practices of monetizing kids that are revealed in the documents:
One memo sought to explain “friendly fraud” (FF) – Facebook’s term for children spending money on games without parental permission – to explain “what it is, why it’s challenging, and why you shouldn’t try to block it.”
- Facebook encouraged game developers that FF was a positive when it came to maximizing revenues, according to an email titled “developer education for loss insights” that outlines the company’s game strategy.
- Another internal document refers to situations in games where children didn’t even know they were spending money. Facebook knew all about this, the CIR says:
Their own reports showed underage users did not realize their parents’ credit cards were connected to their Facebook accounts and they were spending real money in the games, according to the unsealed documents.
In fact, in that report, it’s suggested that maybe Facebook should just refund parents. Facebook chose to ignore such warnings from its own employees for years. Instead, it told game developers that it was focused on maximizing revenues.
- Another document is a transcript of a discussion between Facebook employees after parents found out how much their kids had spent. In one case, a 15-year-old racked up $6,545 during two weeks of gameplay on Facebook. Facebook employees call such children “whales” – a term used in the casino industry to describe profligate spenders. Such children could blithely rack up big bills by purchasing in-game features such as crop-unwilt in FarmVille, for example, or magic spells, or flaming swords, or any of the other features that help game players. In the conversation about the $6,545 credit card bill that resulted from such naivety, the Facebook employees recommend not refunding the parent.
Parents who couldn’t get a response from Facebook, be it from emailing or phone messages, were forced to turn to the Better Business Bureau, or their credit card companies, to get their money back, according to the CIR.
Facebook made a clear decision
The CIR said that the revenue that Facebook made from “bamboozling” children had such large chargeback rates – that’s when credit card companies had to claw back money on behalf of parents – that it far exceeded what the FTC judges to be a red flag for deceptive business practices. All of this went on for years, the CIR said:
Despite the many warning signs, which continued for years, Facebook made a clear decision. It pursued a goal of increasing its revenues at the expense of children and their parents.
Facebook employees not only knew about the problem of FF; they also came up with a solution… that was ignored. To reduce credit card company chargebacks, Facebook employee Tara Stewart suggested to colleagues that the company should just refund money to parents when their kids clearly used their credit card without permission.
A few months earlier, she’d launched a test project to help Facebook reduce chargebacks by requiring children to re-enter the first six digits of the credit card number on certain games before they could spend money. It worked, according to internal documents: It lowered the number of refund and chargeback requests from children.
It had one problem, though: it would have denied Facebook a sizeable chunk of revenue.
In response to a report that found that Angry Birds had a sky-high refund rate of 5-10% (a 2% chargeback rate being what the FTC calls a “red flag” about a “deceptive” business), one Facebook employee wrote:
If we were to build risk models to reduce it, we would most likely block good TPV [total purchase value].
…In other words, revenue.
They ALL squeeze kids like they were so many juicy lemons
Facebook isn’t the only tech company to profit off of game-playing kids. Apple, Google and Amazon have all been accused of squeezing profit out of kids by making it too easy for them to spend money in apps.
All three have also reached settlements with the FTC that required the companies to pay tens of millions in refunds and forced them to modify their billing practices to ensure express consent from parents for in-app purchases.
This is what Facebook had to say when the CIR asked for an interview:
We were contacted by the Center for Investigative Reporting last year, and we voluntarily unsealed documents related to a 2012 case about our refund policies for in-app purchases that parents believe were made in error by their minor children.
We intend to release additional documents as instructed by the court. Facebook works with parents and experts to offer tools for families navigating Facebook and the web. As part of that work, we routinely examine our own practices, and in 2016 agreed to update our terms and provide dedicated resources for refund requests related to purchased made by minors on Facebook.
11 comments on “Facebook tricked kids into in-game purchases, say privacy advocates”
Kids should be taught early on, that companies are in business to make money, not help people. That if something is free, they are the product being sold. Same for politics, but it takes most people into their 30’s to ’50’s to accept that if they ever do.
It’s not even just apps – these buisnesses happen to love models where you acrew fees quietly and then find out later how much was spent. I see this in the cloud models as well. It probably wouldn’t be so bad if you could stick caps on it so you can’t spend more than you want to.
I suppose I’m being hopelessly naive about this, but why is a parent allowing their young children access to their credit cards in the first place?
“In exchange, she let him use her credit card so he could spend $20 on “Facebook Credits” to use in the Ninja Saga game.”
I mean, it sounds like she thought she was giving him access to the equivilant of a gift card, as opposed to her real card (an assumption I too would make if I purchased digital currency.
I read the summons (it was a class action suit) and what it sounds like is not at all what you suggest above. There’s nothing in the lawsuit to suggest that she was somehow unaware she was giving him access “to her real card” or that she “thought she was giving him access to … a gift card” – indeed, the summons explicitly says that the son “asked for permission to spend $20 on his Facebook account using [her] Wells Fargo Master Card.” In the end, he didn’t spend just the $20 they’d agreed at the outset – he spent several hundred dollars over many months, and she didn’t notice.
As it said at the start of the article, the child handed his mum $20 in cash, in exchange for a $20 online purchase on a credit card. It is a perfectly reasonable thing to do for online purchases where cash can’t be used.
I have done similar things with my children many times when they wanted to buy a smartphone app, or a physical product over the internet. Unlike using a credit card as an adult would, the child can’t run up a debit, and still retains a physical relationship with cash that they can only spend once, but with the help of a parent can participate in online an virtual commerce.
If everyone is honest and plays by the rules the system works well, the problem is that in this case, Facebook where not honest.
That’s not quite what happened – she didn’t spend her money, using her account, using her card, on an item for her son in the way you describe. She allowed him to add her card to his account. In other words, the child could and did use her credit card “as an adult would”, did run up a debit, and did not “retain a physical relationship with cash [he] could ony spend once.”
Indeed, the lawsuit doesn’t claim that it played out as you suggest – merely that Facebook’s inistence that “no refunds were possible” was incorrect and that she and all the other parties to the clas action ought to be refunded.
If she really wanted to teach her son how it all worked, she could quite easily have [a] not allowed him to have a Facebook account until he was 13 [b] used his $20 cash to buy a pre-paid card that was his, and show him how to load it onto his account. That way, when the money was gone… it was gone.
All good but I still know a lot of digital illiterates that don’t know exactly what the consequences are when you hand out a credit card. Facebook has a social obligation to teach about these things as they want to be a platform for all.
This is a case of parents not monitoring their childs activities. Who in their right mind gives an 11 year old access to a credit card? They shouldn’t even be using the service.
De-integrated facebook from my life, well over a year ago. not missing a thing.
Very reminiscent of SP Episode 1806 – Freemium Isn’t Free