Young Money: Minors and In-App Purchases

Anecdotal evidence suggests that parents sometimes discover large credit card purchases made without their authorization because a child unknowingly made in-app purchases on various entertainment and gaming apps. An in-app purchase (IAP) is the process by which users of entertainment and gaming applications on smartphones or tablets are able to make purchases within the application even if the application itself was free. Often, these in-app purchases do not require the user to enter credit card information, thus allowing unauthorized users such as children to rack up significant charges on parental credit cards. Commissioned by the Vermont House Government Operations Committee, chaired by Representative Sarah Copeland-Hanzas, this report tackles the issue of unauthorized gaming and entertainment in-app purchases made by minors. In a four-pronged study, this report diagnoses the specific issue, describing the commercial vulnerabilities of minors, labeling relevant stakeholders, outlining the legal landscape, and discussing potential state-level solutions.

After a brief introduction in Section 1, Section 2 identifies the fundamental issue of commercial vulnerability and how IAPs can exploit minors and their naivety. The lack of cognitive development in minors means they are incapable of processing and fully understanding IAP costs. The “free-toplay” gaming takes advantage of this lack of understanding by creating an illusion that the app is free, only to later prompt IAPs which minors can easily misinterpret as a part of the “free” game.

Section 3 introduces current stakeholders and actors involved in the regulation and creation of entertainment and gaming apps. The Federal Trade Commission (FTC), an independent agency of the United States Federal Government responsible for antitrust law and consumer protection, plays the primary role in regulating the major technology companies (Apple, Amazon.com, Google, and Samsung) who own the exchanges on which apps are sold––called app stores––and have recently profited from the switch to the IAP model and related lackluster regulation.

Section 4 examines the current and possible future legal landscape of consumer protections and technology regulations regarding minors making unauthorized IAPs. A bipartisan effort to increase regulations in the U.S. Senate, along with FTC complaints filed in 2014 against Apple, Amazon.com, and Google, signify that the federal government recognizes IAPs as an important issue.

Section 5 considers possible solutions and actionable steps Vermont may take toward remedying the exploitation of minors in gaming and entertainment apps. The broad scope of technology requires federal intervention in order to achieve more sweeping, impactful regulations; however, states are not powerless. Many states have bolstered their consumer protection laws. As more states recognize and take all possible steps to ameliorate the issue of unauthorized IAPs by minors, it is reasonable to predict that the federal government will follow and enact more comprehensive regulations. The general inadequacy of regulation on the rapidly growing technology industry prompts the need for new legislation. This report is intended to help the Vermont State House learn about the issue and assist the committee in developing possible state policy responses.