The social media site appeared to have encouraged developers of games such as Ninja Saga, Angry Birds and PetVille to allow "friendly fraud" so they could rake in more revenues.
According to newly unsealed court documents, Facebook intentionally permitted children to spend money on its site without the knowledge of their parents. In some cases, even the children themselves weren't aware they were racking up hundreds or thousands of dollars already while they play their favorite online game via Facebook.
The years-long effort was thoroughly described in a class action lawsuit stating Facebook's alleged attempts to boost revenue for games such as PetVille, Angry Birds, Barn Buddy and Ninja Saga.
In one case, a 15-year-old son racked up $6,500 in in-game charges after playing a game on Facebook for two weeks, to which the company refused requests for refunds. Ironically, it looked like Facebook employees were actually aware that children were spending money without even realizing they were doing it.
The court documents, which cover 2010 to 2014, were unsealed after a request was made by Reveal, a website managed by The Center for Investigative Reporting. Reveal wrote in its investigatory article report, "Despite the many warning signs, which continued for years, Facebook made a clear decision. It pursued a goal of increasing its revenues at the expense of children and their parents."
The alleged distasteful business practice ended up with very high chargeback rates made by credit card companies that were forced to take measures on behalf of the parents who were unaware that their little ones had spent money using their credit card details.
Within a duration of three months between 2010 and 2011, more than 9% of money spent by children (without their parents' knowledge) via online games was retrieved back by credit card companies. The non-profit Merchant Risk Council regards a 1% chargeback rate as already high, whereas the Federal Trade Commission considers a 2% chargeback rate is definitely a red flag for a business being "deceptive".
The policy of Facebook appears to encourage game developers to create such spending tactics to simply increase revenues - a practice they internally call as FF or "friendly fraud".
According to an internal memo that circulated within the company, Facebook made a crass decision that told game developers to allow children spend money without their parents' consent. The memo said, "Friendly Fraud - what it is, why it's challenging, and why you shouldn't try to block it." The term "friendly fraud" is Facebook's jargon for when children spent money on games without their parents' consent. Also, Facebook internally labeled children who spent huge amounts of money on online games as "whales" - a casino jargon for gamblers who consistently bet large amounts of money.
In 2016, Facebook eventually settled the class action lawsuit, agreeing to "dedicate an internal queue to refund requests for in-app purchases made by US minors."
A Facebook spokesperson said via a statement released last month, "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 purchase made by minors on Facebook."
This latest news adds to Facebook's numerous controversies in the past years. The social media site was previously accused to be involved in a high-profile data-mining scandal and blamed of not doing much to deter the activity of making dummy accounts and the spread of fake news online.