Why Apple will refund consumers for children's app purchases

Apple Inc will refund consumers at least $32.5 million to settle a longstanding complaint that the technology company billed U.S. consumers for charges incurred by children through mobile apps without their parents' consent.

Under the terms of the settlement, announced on Wednesday by the U.S. Federal Trade Commission, Apple also will be required to change its billing practices to ensure it obtains consent from parents before charging for such in-app spending.

"Whether you're doing business in the mobile arena or the mall down the street, fundamental consumer protections apply," said FTC Chairwoman Edith Ramirez. "You cannot charge consumers for purchases they did not authorize."

She estimated that children spent millions of dollars without their parents' knowledge, with one mother telling the agency that her daughter spent $2,600 while playing the game "Tap Pet Hotel."

Ramirez said the commission had received "tens of thousands of complaints" from consumers over the unauthorized purchases through apps such as Dragon Story and Tiny Zoo Friends.

In a memo to employees, Apple CEO Tim Cook referred to a class action settlement reached in June which required the company to pay around $100 million to parents whose children made unauthorized purchases.

"It doesn't feel right for the FTC to sue over a case that had already been settled. To us, it smacked of double jeopardy," Cook wrote. "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."

The FTC complaint alleges that Apple does not inform account holders that entering their password in the company's App Store opens a 15-minute window in which children can incur unlimited charges with no further action from the account holder

While the refunds will be available for purchases through apps aimed at children, all Apple apps will get new disclosures, the wording of which has not yet been finalized.

"To be clear, the issue is not that Apple opens a 15-minute window for in-app purchases," Ramirez said. "What we challenge is the fact that Apple does not inform users of the existence of the window. When parents enter a password, they do not know the full scope of charges they could incur."

Apple shares showed little response to the news and in midafternoon trading were up 2.1 percent at $558.03, holding onto gains posted earlier.

"Protecting children has been a top priority for the App Store from the very beginning, and Apple is proud to have set the gold standard for online stores by making the App Store a safe place for customers of all ages," said Apple spokesman Steve Dowling.

The commission vote to accept the consent agreement package was 3-1, with Commissioner Joshua Wright, a Republican, voting no. In a statement, Wright argued that the FTC failed to show that the "extremely small" group of consumers who were injured justified a finding that Apple was unfair.