Published: Mon, January 28, 2019
Markets | By Erika Turner

Memos: Facebook allowed 'friendly fraud' to profit from kids

Memos: Facebook allowed 'friendly fraud' to profit from kids

One of the documents outlines a term called "Friendly Fraud", which describes the practice of children spending money on games without their parents' consent. One document shows the social networking company knew the average age of Angry Birds players was just five years old.

"The difficulty with friendly fraud is that we do not have a clear way to identify it at a purchase level because it looks like a good transaction", an employee wrote, adding that building "risk models" to reduce such cases "would most likely block good TPV [total purchase value]". They were also unaware their children were able to charge in-game purchases to them "with passwords or any other form of verification".

The documents released Thursday night are part of a 2012 lawsuit against the company, which alleges that Facebook knew kids were making the purchases and made it hard for parents to get their money back, CBS News reported. The company chose to refuse a refund request from the teenager's parents. The documents also show that Facebook typically refused refund requests when it received them from cardholders, according to the report. Despite its recognition of the problem, internal discussions show that Facebook decided it would be best to fight refund requests and allow the problem to persist. Between 2008 and 2014, kids under 18 years old spent more than $34 million in purchases. The abbreviation "FF" stood for "Friendly Fraud", the term Facebook used to refer to these fraudulent purchases which were made without malicious intent.

Rovio was listed in the documents as having noticed a 5% to 10% refund rate through Facebook.

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"There's no way that they didn't know these transactions were originating from Facebook accounts that were assigned to minors", said Bohannan's attorney John Parker.

"They've changed some of their practices but initially when they went into buying and selling things on Facebook, they didn't have proper, safe practices".

"We have now released additional documents as instructed by the court". In a statement, Facebook said, "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". Facebook works with parents and experts to offer tools for families navigating Facebook and the web. With that settlement, Facebook agreed "to dedicate an internal queue to refund requests for in-app purchases made by US minors". At the most recent oversight hearing of the US Federal Trade Commission by the Senate Commerce Subcommittee on Consumer Protection, several senators expressed particular interest in making sure the agency is taking measures to protect kids from predatory online activity.

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