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Facebook rejected attempts to block ‘friendly fraud’ involving children

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Facebook was engaged in a years-long effort to encourage children to spend their parents’ money via Facebook games, according to a report from investigative journalism group Reveal News,

Through a class action lawsuit brought against Facebook, Reveal News acquired internal Facebook documents detailing how Facebook reaped revenue from unwitting children paying for game upgrades with their parents’ credit cards, and discouraged attempts to prevent this practice in order to “maximise revenue”.

The 135 pages of documents date from 2010 to 2014, and were revealed by US District Court Judge Beth Freeman.

The documents detail the practice of ‘FF-minor’: referring to ‘friendly fraud’ in which children spend money on games without their parents’ knowledge and often without their own knowledge. These children were referred to by Facebook employees as ‘whales’ (a term used in the casino industry to refer to big spenders responsible for a considerable proportion of overall revenue)

 In most cases, these children were encouraged to spend money via in-game purchases – such as for extra lives or bonus features for avatars – which did not look like ‘real’ money, and often did not explicitly mention payment. In approximately half of cases, the cardholder did not receive a receipt for these in-game purchases. Games with lucrative in-game purchase included Angry Birds, PetVille and Ninja Saga.

According to the documents, when parents became aware of these charges, many of them requested chargebacks from their credit card providers. Approximately ten per cent of Facebook’s revenue from child “whales” was being recouped by credit card providers; far exceeding the two per cent that the FTC has stated was an indicator of a “deceptive” business.

For instance, when Angry Birds asked the company why 5-10 per cent of its Facebook revenue was being recouped, Facebook found that 93 per cent of the time, the cardholder was unaware that the game was charging their account. The average age of an Angry Birds player was just five.

FF-minor continued despite internal warnings that children did not understand what they were doing. A group of Facebook employees had begun working on a method for preventing FF-minor by requiring players to re-enter some credit card information before making subsequent purchases. This suggestion was rejected in favour of “maximising revenue”.

“If we were to build risk models to reduce it, we would most likely block good [total value purchase],” a Facebook employee wrote.

A company memo explained that FF-minor should not be blocked. Facebook suggestions for how to deal with complaints and chargeback requests included gifting free virtual in-game goods instead of offering refunds, and proposing a program that automatically disputes chargeback requests; whether or not the program was written and run is not known.

In a statement to RevealNews, the company said that: “We routinely examine our own practices, and in 2016 agreed to update our terms and provide dedicated resources for refund requests related to purchased made by minors on Facebook.”

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