Facebook has been accused of engaging in a practice internally dubbed ‘friendly fraud’ in an effort to dupe kids and parents into spending money on free-to-play games, according to court documents unsealed and reported by the publication Reveal.
Reveal obtained the 135 pages worth of documents as part of a lawsuit brought by a U.S. District Court Judge. The lawsuit alleges that Facebook carried out a multi-year campaign designed to trick minors and their parents into shelling out as much money as possible when it came to playing games like Angry Birds, PetVille, and Ninja Saga.
Facebook reportedly targeted children in its ploy to maximize revenue from free games. In some cases, children were encouraged to make purchases without their parents' permission. In other cases, money being spent was made to seem fake.
Facebook’s own staff was aware of these strategies, according to an internal document.
Refused to issue refunds
Kids who had racked up huge spending totals (in one instance, $6,500) were called “whales,” a term used by the gambling industry. Game revenue from children between October 12, 2010 through January 12, 2011 soared to ‘a whopping $3.6 million,’ according to Facebook’s own data.
However, more than 9 percent of the money was being “clawed back by the credit card companies,” according to Reveal. “The average chargeback rate for businesses is 0.5 per cent, and 1 percent is considered ‘high’. 2 percent thought to be a ‘red flag’ indicator of a ‘deceptive’ business,’” the publication noted.
In July 2011, Facebook employee Tara Stewart said that "if the devs are really concerned about the [chargebacks] and not refunds it could make sense to start refunding for blatant [friendly-fraud of minors]".
Stewart said the games "PetVille, Happy Aquarium, Wild Ones, Barn Buddy and any Ninja game" were particularly problematic because, as she later wrote, "it doesn't necessarily look like 'real' money to a minor.”
She and her colleagues then came up with a system that required the user to input the first six digits of the credit card number again, forcing "the minor to prove he is in possession of the credit card.”
"Often refunds/[chargebacks] occur because a parent permits his child to spend at a small denomination and doesn't realize that the [credit card] info will be stored," she wrote.
The move ultimately lowered the number of refund and chargeback requests from children.
In a statement, Facebook said it routinely examines its own practices and that it updated its terms in 2016.
“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,” the company said.
“We have now released 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 purchases made by minors on Facebook.”