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

GoFundMe started after fire leaves Ruth Lake cabin severely damaged

‘The fire hit hard and fast - he lost everything’

Will you be voting for a different federal party than you did in 2015?

The weekly web poll for the 100 Mile Free Press

Capturing everyday life: Verboom brings loose realism to the Showcase Gallery

‘I love that our Cariboo life is real people with real jobs… blue collar, hard-working people’

100 Mile House Fire-Rescue kicks off fire prevention week with open house

“We always want the public to come and see for themselves”

From the archives of the 100 Mile Free Press

28 YEARS AGO (1991): Members of the Cariboo Elders Building and Recreation… Continue reading

VIDEO: #MeToo leader launches new hashtag to mobilize voters

Tarana Burke hopes to prompt moderators to ask about sexual violence at next debate

Rugby Canada helps recovery efforts in Japan after typhoon cancels final match

Canadian players wanted to “give back in whatever small way they could”

Cheating husband sues mistress for gifted ring after wife learns about affair

The husband gave his mistress $1,000 to buy herself a ring in December 2017

British couple vacationing in Vancouver detained in US after ‘accidentally’ crossing border

Parents travelling with three-month-old reportedly being held in Pennsylvania

After losing two baby boys, B.C. parents hope to cut through the taboo of infant death

Oct. 15 is Pregnancy and Infant Loss Awareness Day in B.C.

Alberta to join B.C.’s class-action lawsuit against opioid manufacturers, distributors

B.C. government claims opioids were falsely marketed as less addictive than other pain meds

VIDEO: Trudeau, Singh posture for ‘progressive’ votes while Scheer fights in Quebec

NDP Leader Jagmeet Singh, whose party has been on the rise in recent polls, is campaigning in Toronto

Advance voter turnout up 25% for first two days: Elections Canada

Two million people voted Friday and Saturday

Okanagan principals told to confiscate vaping products from students

Vaping is up 74 per cent in youth over the last two years, according to one Canadian study

Most Read