Memos: Facebook allowed ‘friendly fraud’ to profit from kids

The lawsuit, filed California, centred on allegations that Facebook knowingly milked teenagers

Facebook allowed children to rack up huge bills on digital games while the company rejected recommendations for addressing what it dubbed “friendly fraud,” according to newly released court documents.

The internal Facebook memos and other records were unsealed late Thursday to comply with a judge’s order in a federal court case settled in 2016.

The lawsuit, filed in San Jose, California, centred on allegations that Facebook knowingly milked teenagers by permitting them to spend hundreds of dollars buying additional features on games such as “Angry Birds” and “Barn Buddy” without their parents’ consent.

The documents show Facebook considered measures to reduce the chances of kids running up charges on parents’ credit cards without their knowledge. But the company didn’t adopt them for fear of undercutting the revenue growth that helps boost the company’s stock price — and its employees’ compensation.

The internal debate about how to address the recurring problem of kids spending big bucks behind their parents’ backs occurred from 2010 and 2014 — a period that included Facebook’s stock market debut in 2012. After going public at $38 per share, Facebook’s stock plummeted by 50 per cent, intensifying the pressure on CEO Mark Zuckerberg and his management team to bring in more revenue.

None of the unsealed records, however, directly tie Facebook’s tolerance of “friendly fraud” to concerns about its slumping stock price during parts of 2012 and 2013.

A Facebook statement didn’t address its rejection of the recommendations. Instead, it said the company has offered refunds and changed its practices.

“We routinely examine our own practices, and in 2016 agreed to update our terms and provide dedicated resources for refund requests related to purchases made by minors on Facebook,” the Menlo Park, California, company said in a statement Friday.

READ MORE: Facebook reveals bug gave apps unauthorized access to 6.8 million users’ photos

Facebook isn’t the only prominent technology company that has been skewered for profiting from game-loving children who don’t always understand how much of their parents’ money they are spending while playing games in apps or websites.

Apple agreed to issue $32.5 million in refunds for allowing kids to make in-app purchases without parental consent as part of a 2014 settlement with the Federal Trade Commission. That same year, Google settled a similar case for $19 million with the same agency. In 2017, Amazon resolved another case involving up to $70 million in potential refunds owed for kids’ unauthorized spending on games.

But none of those companies had their dirty laundry aired quite like Facebook is now in a case that it thought it had closed a few years ago. The unflattering documents are emerging after the non-profit Center for Investigative Reporting sought their release and U.S. District Judge Beth Freeman granted it.

To make matters worse for Facebook, the documents are coming out at a time when it is trying to repair the damage done to its reputation over the past 10 months from a scandal involving the data-mining firm Cambridge Analytica, and other debacles.

Facebook released the “friendly fraud” documents just as the Wall Street Journal was publishing an op-ed piece by Zuckerberg defending the company’s integrity and business principles.

But some of the information unsealed in the court case painted a picture of a predatory company.

READ MORE: Facebook’s privacy lapses may result in record fine

In a 2013 discussion between two of the company’s employees, a 15-year-old Facebook user who had spent about $6,500 playing games is described as a “whale” — a term that gambling casinos use to describe people who make them a lot of money. The company decided to refuse a refund request from the teenager’s parents.

The documents also disclosed that some Facebook employees had proposed requiring minors and people over 90 years old to provide the first six digits of the credit card accounts before allowing purchase as a way to reduce unauthorized spending. But Facebook management decided against requiring that additional information because it might also discourage users outside those age ranges from spending, too.

Michael Liedtke, The Associated Press

Like us on Facebook and follow us on Twitter.

Just Posted

Five km run and walk raises funds for Stettler Hospice Society

Stettler District Ambulance Association encourages community to be active

Ol’ MacDonald’s Resort has a packed line-up of musical performances

Weekend country music festival set for Sept. 6th-8th

Alberta RCMP warns property owners of paving contractor scams

Travelling companies offer paving or roof sealing services typically to seniors in rural communities

Renegade Station is gearing up for a performance at ‘Entertainment in the Park’ on Aug. 28th

It’s been a hectic season in the successful Stettler-based band’s journey

VIDEO: Title of 25th Bond movie is ‘No Time to Die’

The film is set to be released in April 2020

RCMP and fire departments respond to possible drowning on Sylvan Lake

RCMP say they are actively searching for a man in his 20s with boats on the lake

New study suggests autism overdiagnosed: Canadian expert

Laurent Mottron: ‘Autistic people we test now are less and less different than typical people’

Trans Mountain gives contractors 30 days to get workers, supplies ready for pipeline

Crown corporation believes the expansion project could be in service by mid-2022

New ‘Matrix’ film set with Keanu Reeves and Lana Wachowski

Fourth installment to feature Reeves as Neo and Carrie-Anne Moss as Trinity

Ethics commissioner ready to testify on Trudeau, SNC-Lavalin: NDP critic

A new poll suggests the report hasn’t so far hurt the Liberals’ chances of re-election this fall

Inflation hits Bank of Canada 2% target for second straight month

Prices showed strength in other areas, including an 18.9 per cent increase in the cost of fresh vegetables

Alberta oil curtailment rules extended to late 2020 as pipeline delays drag on

At issue is ability to export oil in face of regulatory and legal challenges against pipelines

Most Read