The Federal Trade Commission is suing Amazon, alleging that the online retailer did nothing to prevent millions of dollars in unauthorized in-app purchases by children despite internal warnings among Amazon employees as early as 2011 that allowing unlimited charges without any parental passwords was causing problems for many customers.

The complaint alleges that Amazon's setup allowed children playing these kids' games to spend unlimited amounts of money to pay for virtual items within the apps such as “coins,” “stars,” and “acorns” without parental involvement or authorization. The complaint alleges that when Amazon introduced in-app charges to the Amazon Appstore in November 2011, there were no password requirements of any kind on in-app charges, including in kids' games and other apps that appeal to children. Amazon pockets 30 percent of all in-app charges.

In March 2012, according to the complaint, Amazon updated its in-app charge system to require an account owner to enter a password only for individual in-app charges over $20. Amazon, however, continued to allow children to make an unlimited number of individual purchases of less than $20 without a parent's approval. An Amazon employee noted at the time of the change that “it's much easier to get upset about Amazon letting your child purchase a $99 product without any password protection than a $20 product,” according to the complaint. In July 2012, internal emails again described consumer complaints about in-app charges as a “house on fire” situation. “Even Amazon's own employees recognized the serious problem its process created,” FTC Chairman Edith Ramirez said in a statement.

The FTC alleges that in early 2013, Amazon updated its in-app charge process to require password entry for some charges in a way that functioned differently in different contexts. Even when a parent was prompted for a password to authorize a single in-app charge made by a child, that single authorization often opened an undisclosed window of 15 minutes to an hour during which the child could then make unlimited charges without further authorization.

According to the lawsuit, thousands of parents complained to Amazon about in-app charges their children incurred without their authorization, amounting to millions of dollars of charges. For example, one mother noted in the FTC complaint told Amazon that her daughter was able to rack up $358 in unauthorized charges, while others complained that even children who could not read were able to “click a lot of buttons at random” and incur several unauthorized charges.

The company's stated policy is that all in-app charges are final and nonrefundable. According to the complaint, even parents who have sought an exception to that policy have faced a refund process "that is unclear and confusing, involving statements that do not explain how to seek refunds for in-app charges or suggest consumers cannot get a refund for these charges." The lawsuit seeks a court order requiring refunds to consumers for the unauthorized charges and permanently banning the company from billing parents and other account holders for in-app charges without their consent.

This is the FTC's second case relating to children's in-app purchases. Apple settled an FTC complaint concerning the issue earlier this year. The Commission is seeking full refunds for all affected consumers, disgorgement of Amazon's ill-gotten gains, and a court order ensuring that in the future Amazon obtains permission before imposing charges for in-app purchases.

The vote authorizing the staff to file the complaint was 4-1, with Commissioner Joshua Wright voting no. The complaint was filed in the U.S. District Court for the Western District of Washington.

For its part, Amazon signaled earlier this month that it was prepared to fight the FTC in court after negotiations between the two failed. In a letter to the agency earlier this month, after reviewing a draft of the lawsuit, rebuffed threats of fines and new disclosure requirements, saying it was willing to defend its policies before a judge. The company's legal counsel wrote that its policies are well-promoted and that refund requests were diligently handled.

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