App businesses warned to disclose in-app purchases, as kids spend hundreds of dollars playing games

App businesses are being warned to disclose in-app purchases to the consumer at the time of purchase, or risk future penalties, following a recent consumer watchdog sweep of app games.

The Australian Competition and Consumer Commission’s recent investigation of 340 apps in September this year revealed less than 25% of children’s ‘free’ apps on one of the operating platforms disclosed that in-app purchases could be made.

SmartCompany asked the ACCC whether this was the iOS or Android platform, but the watchdog refused to comment.

ACCC deputy chair Delia Rickard said in a statementparents can find themselves with huge bills after their children buy fake goods or spend money to skip levels within the apps.

“Once you’re playing, many games make it clear that you can get ahead or avoid getting bogged down if you shell out for in-app purchases,” she says.

“Children exposed to this won’t always connect a top on the screen in the heat of the action with spending their parents’ money in the real world.”

Across both the iOS and Android platforms, the ACCC found less than 20% of children’s ‘free’ apps included information about how to prevent or restrict in-app purchases.

The director of fast-growing app company Appster, Mark McDonald, told SmartCompany many of his clients have encountered this problem.

“We have clients who say the only reason they know about apps and want to make one is because their daughter spent $100 on fake candy,” he says.

“Our stance is in-app purchases for kids are unethical, but it can be a slippery slope. Do you rule out every single feature of an app which encourages people to come back? If you did this there would be a lot of unintended consequences.”

McDonald says the “freemium” apps are designed to encourage people to keep using the app and spending money within the game.

“An app like My Little Pony for example contains gamification which is similar to gambling. In freemium apps, game designers are trying to get people to return more and more because their value is in people coming back and making purchases,” he says.

“In My Little Pony they have a carnival where kids can win prizes or buy things. It’s one of the most financially successful in-app purchases for kids.”

But McDonald says the problem is deeper than just in-app purchases.

“There is a whole ethical debate about whether or not we should be using the same game design on children as we do adults,” he says.

“But the interesting thing as well is even on kids games you tend to get a dual audience. Like with My Little Pony, you get some full grown men who love My Little Pony called ‘bronies’ and they make up a good portion of the audience playing the game.”

The ACCC had joined with other consumer watchdogs across the globe in examining whether or not consumers know what to expect before downloading these apps.

It says the sweep highlights the potential for misleading and deceptive conduct in the promotion of these apps, as well as inadequate disclosure of key terms and conditions.

Rickard previously told SmartCompany enforcement would be an option if companies don’t improve disclosure.

The ACCC is supporting the principles proposed for the online and app-based game industry by the United Kingdom Office of Fair Trading.

These principles include the necessity of disclosing possible in-game costs or advertising upfront, as well as other important terms, and that an account holder, such as a parent, needs to have given informed consent for payments to be authorised.

McDonald says Apple has reasonable controls in place to limit the ability of kids to make unauthorised payments, but improvements are still needed to the Android platform.

Apple had previously received a number of complaints from parents whose children had spent thousands of dollars on in-app purchases. Following the complaints, in March 2011 it was forced to implement parental controls.