As part of an agreement with the FTC, Apple also must change its billing practices to require consent from consumers before charging them for in-app purchases.
Apple has to refund at least $32.5 million to customers in a settlement with the Federal Trade Commission over in-app purchases.
Announced Wednesday by the FTC, the agreement settles a complaint from the agency that Apple charged consumers millions of dollars over in-app purchases made by kids without parental consent. Under the agreement, Apple also must now change its billing methods to make sure it receives "express, informed consent" from users before it charges them for such purchases.
"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," FTC Chairwoman Edith Ramirez said in a statement. "You cannot charge consumers for purchases they did not authorize."
Specifically, the complaint charged Apple with violating the FTC Act by not telling parents that entering a password to approve an initial in-app purchase would allow 15 minutes of additional purchases without further authorization needed. Apple's in-app purchase screen prompts for a password but doesn't reveal that the password opens the door for those extra 15 minutes, the FTC said.
The FTC said that Apple had received "tens of thousands" of complaints, if not more, about children having made unauthorized in-app purchases that added up to millions of dollars. It cited, as just one example, the case of a consumer whose daughter spent $2,600 in the app "Tap Pet Hotel," and other instances of children incurring more than $500 in charges in the apps "Dragon Story" and "Tiny Zoo Friends."
In a statement following the FTC announcement, Apple acknowledged the need to be attentive to how children interact with online services:
"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," Apple said in the statement. "Today's agreement with the FTC extends our existing refund program for in-app purchases which may have been made without a parent's permission."
Apple has until March 31 of this year to revise its billing practices to fulfill its part of the bargain. Beyond requiring informed consent for in-app purchases, Apple must also give consumers the option to withdraw their consent at any time.
Apple CEO Tim Cook revealed the settlement in a memo to employees, according to Recode. Cook said that Apple had been negotiating with the FTC for "several months" over the in-app purchase issue but claimed that the proposal doesn't "require us to do anything we weren't already going to do." Cook described Apple's refund plans in the memo:
Last year, we set out to refund any in-app purchase which may have been made without a parent's permission. We wanted to reach every customer who might have been affected, so we sent emails to 28 million App Store customers - anyone who had made an in-app purchase in a game designed for kids. When some emails bounced, we mailed the parents postcards. In all, we received 37,000 claims and we will be reimbursing each one as promised.
But Cook also took aim at the FTC over rehashing this issue after a federal court had already approved a settlement, saying the agency's lawsuit "smacked of double jeopardy."
Update 11:01 a.m. PT: Added response from Apple, plus additional background information.