Facebook Is Still Letting Kids Get Duped

Facebook continues to put users at risk of being duped into spending money on games.

In January, Reveal from The Center for Investigative Reporting showed how the company knowingly made millions of dollars between 2010 and 2014 from parents who didn’t realize their kids were being charged to play games such as Angry Birds, Ninja Saga and Barn Buddy.

Those details surfaced in January after a California court unsealed more than 150 pages of Facebook records. But the records did not answer a big question: Has Facebook changed its policy, or are users still bamboozled into spending money while playing its games?

Now, a Reveal review has found that despite widespread criticism from U.S. senators, advocacy groups and its own users, Facebook has not changed a key policy that got it into trouble.

The company still allows game developers to run incredibly high chargeback rates – a little-known industry term that describes when people are forced to ask their credit card company for help getting refunds.

High chargeback rates are a warning sign that a business might be defrauding its customers because so many people are seeking help to get refunds, according to the U.S. government. A chargeback rate of 1 percent is considered high, and anything over 2 percent is a “red flag” of deceptive behavior, according to the Federal Trade Commission.

Facebook’s payment policies show the company still permits game developers to run chargeback rates of 5 percent before it will penalize them. That is more than double what the government says should be ringing alarm bells for potential business fraud.

Facebook acknowledged that this 5 percent chargeback rate is the only guidance it gives developers about acceptable limits, but said that overall, it maintains a low rate and handles problematic game developers on a case-by-case basis.

“Chargebacks create a bad experience for people on Facebook and for us. We keep records of these transactions, and Facebook’s overall chargeback rate for in-app payment transactions is well below the 1% guidelines set by payment card networks,” Facebook said in a statement. “As our Payments Terms state, we follow up with and may enforce against individual game developers if their chargeback rates get too high.”

When a game does surpass a 5 percent chargeback rate, Facebook does not necessarily take any action against the developer. It penalizes them only by withholding money under certain circumstances, according to its payment terms.

“Once again, Facebook can’t be trusted to do the right thing. Facebook is aware of the damage this is doing to children and families,” said Jim Steyer, founder of the child advocacy group Common Sense Media. “They need to be held accountable.”

In February, a consortium of nonprofits led by Common Sense Media filed a complaint with the Federal Trade Commission against Facebook based on details revealed in the unsealed court records. When told about Facebook’s 5 percent chargeback policy, Steyer called for immediate action from lawmakers and regulators.

Facebook has a long history with high chargeback rates. It was high chargeback rates that alerted Facebook employees in 2011 that its users were being unwittingly duped into spending hundreds or even thousands of dollars on its games.

Eight years ago, Facebook employees launched an internal analysis that revealed underage users and their parents did not always realize they were spending money on in-game purchases for extra lives, virtual coins, magical swords and other virtual goods, internal documents show.

Some games did not make it clear to children that they were spending real money. And parents didn’t always know that Facebook had stored their credit card information and would let their children use it without entering a password or some other form of payment authorization.

Having learned that the company was profiting off the mistakes of children and their parents, Facebook’s employees designed a solution that would have helped stop the problem. But that solution came with one crucial drawback: It likely would hurt Facebook’s revenues, the unsealed documents show.

The company did not implement the solution, which other tech firms such as Apple already were using, according to the court documents. And Facebook continued to deny refunds to children and their parents, who kept being surprised to find hundreds or even thousands of dollars in charges on their credit card statements.

One 15-year-old girl accrued $6,500 in charges in just a few weeks. A boy in Arizona spent nearly $1,000 over the course of a weekend without realizing it. And one young mother described waking up from a short “pregnant nap” on the sofa to discover her toddler had spent nearly $250. Facebook denied them refunds.

Upset parents turned to their credit card companies, which clawed back money from Facebook. This pushed up chargeback rates for Facebook’s games.

Now Facebook is making a renewed effort to expand its gaming business. In December, it celebrated the second anniversary of its updated gaming platform, which the company calls Instant Games. The games are now highly integrated into Facebook’s many products, such as Messenger. And it’s paying off for Facebook and the third-party game developers. The number of people playing games on the new platform tripled in 2018, according to the company, and revenues for developers are up.

When players make in-game purchases, Facebook collects the money from users, often keeping 30 percent for itself, and then passing on the remaining 70 percent to the developer.

In January, Sens. Edward Markey, D-Mass., and Richard Blumenthal, D-Conn., wrote a letter to Facebook CEO Mark Zuckerberg citing Reveal’s investigation and asked what changes the company had implemented to prevent children and their parents from being duped out of money while playing games. Facebook responded that it “streamlined” the refund process for children and their parents who believe they were cheated.

But despite the torrent of complaints this year, the company did not change its 7-year-old policy of allowing game developers to run sky-high chargeback rates.

Karisse Hendrick, a chargeback consultant for Fortune 500 companies, said it can be harder for online retailers to keep chargeback rates lower because fraudsters might order something with a stolen credit card or falsely claim that they never ordered something or that it didn’t arrive after receiving it.

But Hendrick was unfamiliar with any company that allowed chargeback rates of 5 percent as a matter of policy. When told about Facebook’s payment terms, she provided a one-word response: “Wow.”

Hendrick said Zuckerberg has the experience to know how chargebacks work.

“I worked with Mark Zuckerberg when they first started about 12 years ago because they had high chargebacks,” she said.

She said Facebook’s current 5 percent chargeback policy makes users vulnerable to being defrauded by unscrupulous game developers and the social media giant was not following best practices.

“It’s amazing they’re comfortable with 5 percent and that they’re putting it in writing,” Hendrick said. “I think that type of attitude is a symptom of a bigger problem at Facebook. It’s putting revenues over the care and trust of customers.”

This story was edited by Andrew Donohue and copy edited by Nikki Frick.

Nathan Halverson can be reached at [email protected]. Follow him on Twitter: @eWords.

This story was originally published by Reveal from The Center for Investigative Reporting, a nonprofit news organization based in the San Francisco Bay Area. Learn more at revealnews.org and subscribe to the Reveal podcast, produced with PRX, at revealnews.org/podcast.