Facebook Alleged To Have Promoted “Friendly Fraud” Through Children’s Games

The Center for Investigative Reporting (“Reveal”) announced on January 24, 2019 in an article entitled, “Facebook knowingly duped game-playing kids and their parents out of money” that “Facebook orchestrated a multiyear effort that duped children and their parents out of money, in some cases hundreds or even thousands of dollars, and then often refused to give the money back, according to court documents unsealed” that span from 2010 to 2014.

Reveal analyzed more than 135 pages of documents that were recently unsealed as part of a class-action lawsuit focused on how Facebook allegedly targeted children in an effort to expand revenue for online games, such as Angry Birds, PetVille and Ninja Saga. The unsealed documents include internal Facebook memos, secret strategies, and employee emails that Reveal describes as painting a troubling picture of how the social media giant conducted business.

Reveal describes how Facebook encouraged game developers to let children spend money without their parents’ permission – something the social media giant called “friendly fraud” – in an effort to maximize revenues (“friendly fraud” is the term Facebook used when children spent money on games without their parents’ permission). Sometimes the children did not even know they were spending money but Facebook employees knew it: their own reports allegedly showed underage users did not realize their parents’ credit cards were connected to their Facebook accounts and they were spending real money in the games.

Reveal claims that Facebook denied requests for refunds when parents found out how much their children had spent (a child could spend hundreds of dollars a day on in-game features such as arming their character with a flaming sword or a new magic spell to defeat an enemy, even if they did not realize it until their parents received their credit card bills) and that Facebook employees referred to these children as “whales” – a term borrowed from the casino industry to describe profligate spenders.

Facebook reportedly had analyzed data on game revenue from children for the time period from October 12, 2010 through January 12, 2011 and found that children had “spent a whopping $3.6 million” during the three-month period. Facebook also found that more than 9 percent of the money it made from children was being clawed back by the credit card companies (the average chargeback rate for businesses is 0.5 percent, according to the Merchant Risk Council; the Federal Trade Commission said in an unrelated fraud case in 2016 that a 2 percent chargeback rate was a “red flag” of a “deceptive” business).

Facebook reportedly found that with regard to the Angry Birds game, about 93 percent of the time the refunds were a result of credit card holders not realizing the game was charging their account (Facebook found that the average age of those playing Angry Birds was 5). Reveal stated that rather than trying to stop children from making costly mistakes, a Facebook internal memo entitled “Friendly Fraud – what it is, why it’s challenging, and why you shouldn’t try to block it” stated that developers should just give free virtual items to users who complain, things such as flaming swords, extra lives and other in-game enhancements – this was better than refunding money to kids because, as the Facebook employee said in her message, “Virtual goods bear no cost.”

Facebook released the following statement in response to Reveal’s request for an interview:

“We were contacted by the Center for Investigative Reporting last year, and we voluntarily unsealed documents related to a 2012 case about our refund policies for in-app purchases that parents believe were made in error by their minor children. We intend to release additional documents as instructed by the court. Facebook works with parents and experts to offer tools for families navigating Facebook and the web. As part of that work, we routinely examine our own practices, and in 2016 agreed to update our terms and provide dedicated resources for refund requests related to purchased made by minors on Facebook.”

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