FTC should investigate Facebook’s child gaming practices, advocates say

The Federal Trade Commission is being urged to investigate Facebook after court records unsealed last month showed the social media giant deployed a business model that knowingly duped children out of money.

“Facebook’s internal documents indicate a callous disregard for young people and a culture that prioritized profits over people,” a coalition of child safety and online privacy groups wrote in a complaint filed with the FTC this morning.

The unsealed court documents – more than 150 pages of internal Facebook memos, strategies and emails between employees that span from 2010 to 2014 – show that the Silicon Valley company knew children were unwittingly spending hundreds or even thousands of dollars on its games.

The information revealed in the Facebook documents, which were uncovered by Reveal from The Center for Investigative Reporting, should be investigated by the FTC, according to the complaint signed by more than a dozen advocacy groups:

Facebook knew that a number of in-game purchases were so integrated into gameplay that children did not realize they were spending real money, with one employee noting that purchases with Facebook credits “don’t necessarily look like real money to a minor.”

Facebook’s internal documents show that parents did not realize the company had stored their credit card or that children could make in-game purchases without some form of authorization, such as re-entering the credit card number or a password. Records also show children could be confused that they were spending real money, instead thinking they were playing with virtual money as they advanced through the gameplay. Some of the children were as young as 5, and some spent as much as $6,500 in only a few weeks.

The complaint to the FTC states:

There is no benefit to consumers here – not to the parents being charged without permission, nor to the kids who do not realize the digital “sword” they click on in a game costs actual money. The only benefits accrue to Facebook and the developers who have designed a system to dupe children and take their families’ money.

In 2011, Facebook employees designed a solution to help alert parents and children when they were spending real money, but the company did not implement the measure. Facebook was concerned that fixing the problem would hurt its revenues.

Instead, internal Facebook documents reveal that employees referred to children who spent thousands of dollars on games as “whales,” using a casino term for high-spending gamblers, then refused to return money to stunned parents and underage users.

“Facebook’s exploitative practices targeted a population universally recognized as vulnerable – young people,” according to the complaint spearheaded by Common Sense Media, one of the largest U.S. nonprofits dedicated to children’s issues.

The court records came to light after Reveal intervened last year in a civil lawsuit against Facebook and asked the U.S. District Court judge to unseal the records because of growing public interest in how Facebook generates revenue.

The complaint filed today states that “Facebook has engaged in unfair or deceptive practices in violation of Section 5 of the Federal Trade Commission Act and the Children’s Online Privacy Protection Act.”

The practice of charging children for purchases made without parental consent, and often without parental awareness, constitutes an unfair practice under the FTC Act, the complaint alleges. And it urged the FTC to investigate what personal information Facebook has collected from children, which would fall under regulations of the Children’s Online Privacy Protection Act.

Facebook issued this statement this morning in response to the complaint:

We want people to have safe and enjoyable gaming experiences on Facebook, so providing resources to seek refunds for unauthorized purchases made in games is an important part of the platform. We have in place mechanisms to prevent fraud at the time of purchase and we offer people the option to dispute purchases and seek refunds.

As part of our long history of working with parents and experts to offer tools for families navigating Facebook and the web, Facebook also has safeguards in place regarding minors’ purchases. In 2016, we updated our terms and now provide dedicated resources for refund requests related to purchases made by minors on Facebook, including special training for our reviewers.

Nathan Halverson can be reached at nhalverson@revealnews.org. Follow him on Twitter: @eWords.