Apple settles with FTC over apps and kids

Wednesday, 15 Jan 2014 | 11:50 AM ET
Apple to refund at least $32.5 million
Wednesday, 15 Jan 2014 | 12:06 PM ET
The Federal Trade Commission is set to levy a fine against Apple for disclosures about Apple's "In-app" purchase feature of the app store. Younger consumers have been able to make purchase without parental consent.

Apple agreed to settle with the Federal Trade Commission over a loophole that allowed children to make in-app purchases without their parents' permission.

Under the terms of the settlement with the FTC, Apple must change its billing practices to ensure that it has obtained "express, informed consent from consumers before charging them for items sold in mobile apps," according to an FTC statement.

"This settlement is a victory for consumers harmed by Apple's unfair billing, and a signal to the business community: whether you're doing business in the mobile arena or the mall down the street, fundamental consumer protections apply," said FTC Chairwoman Edith Ramirez, in the statement. "You cannot charge consumers for purchases they did not authorize."

CEO Tim Cook says his company has already taken appropriate steps to close the loophole and that the FTC won't require any further changes to the purchase policy. Apple is refunding customers for some $32 million in unauthorized app purchases.

A child plays an app game on an iPod Touch.
Melina Mara | The Washington Post | Getty Images
A child plays an app game on an iPod Touch.

"It doesn't feel right for the FTC to sue over a case that had already been settled," Cook wrote in a letter to Apple employees. "To us, it smacked of double jeopardy. However, the consent decree the FTC proposed 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."

(Read more: Cramer: Apple's China deal much bigger than Wall Street thinks)

FTC reaches consent deal with Apple
CNBC's Eamon Javers reports Apple's Tim Cook has sent a letter to employees that the company has entered into a consent decree with the Federal Trade Commission.

The problem arose when Apple originally designed the App Store to allow users to purchase apps for 15 minutes after they entered their password. Some children discovered the window of opportunity and ran up gigantic bills on their parents iTunes accounts by downloading apps and virtual goods on phones and tablets. Irked parents complained to Apple, which last year set out to refund parents claims.

In all, Cook says, the company received 37,000 claims and is in the process of reimbursing them. The FTC says a minimum of $32.5 million should be refunded within the next year.

The FTC cited several major complaints as spurring the inquiry, including one daughter who spent $2,600 in the app Tap Pet Hotel. Apple will be required to make the FTC's required changes by March 31.

- By CNBC's Jon Fortt

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  • Matt Hunter is the senior technology editor at CNBC.com.

  • Cadie Thompson is a tech reporter for the Enterprise Team for CNBC.com.

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.

  • Jon Fortt is an on-air editor. He covers the companies, start-ups, and trends that are driving innovation in the industry.

  • Lipton is CNBC's technology correspondent, working from CNBC's Silicon Valley bureau.

  • Mark is CNBC's Silicon Valley/San Francisco Bureau Chief covering technology and digital media.