Democratic senators urge FTC to act on Facebook 'friendly fraud' practices

SAN FRANCISCO (Reuters) - Two Democratic U.S. senators called for the Federal Trade Commission to act on a complaint filed by consumer groups against Facebook Inc on Thursday that alleged the company scammed children into spending money on its platform.

FILE PHOTO: Two women take photos in front of the entrance sign to Facebook headquarters in Menlo Park, California, on Wednesday, October 10, 2018. REUTERS/Elijah Nouvelage/File Photo

A coalition of consumer groups asked the FTC to investigate whether Facebook had engaged in deceptive practices, claiming the company lured children into making extensive in-game purchases without parental consent.

The social media company settled a class-action lawsuit on the issue in 2016, but further details came to light last month after a request by the Center for Investigative Reporting here resulted in the unsealing of the court documents.

The documents disclosed that Facebook employees referred to the practice as “friendly fraud” and called children who racked up thousands of dollars in charges “whales,” a term commonly used in casinos to describe high-spending gamblers.

“We urge the FTC to review in detail the complaint that was filed today on this issue. It shouldn’t take another settlement for Facebook to meet its ethical obligation to protect kids and families on its platform,” Senators Edward Markey and Richard Blumenthal said in a statement.

They said Facebook dodged their questions on the issue, posed to Chief Executive Mark Zuckerberg in a letter last month after the documents were unsealed.

“Facebook’s answers to our reasonable questions were inadequate and do not inspire trust,” they said.

Facebook said in a statement that it had mechanisms in place to prevent fraud and provided dedicated resources for refund requests related to purchases by children.

“We want people to have safe and enjoyable gaming experiences on Facebook, so providing resources to seek refunds for unauthorized purchases made in games is an important part of the platform,” the statement added.

In its prior response to the lawmakers, Facebook said it never encouraged anyone to engage in friendly fraud and had incentives to resolve complaints directly with users to avoid credit card companies’ chargeback fees.

The senators said the company failed, however, to explain why it did not act on widespread complaints before the case went to court and declined to answer specifically when Zuckerberg became aware of the issue.

Facebook is facing a slew of lawsuits and regulatory inquiries over its record on privacy, security and the use of its platform by groups spreading disinformation.

The FTC is already investigating disclosures that Facebook inappropriately shared information belonging to 87 million users with the defunct British political consulting firm Cambridge Analytica.

Reporting by Katie Paul; Editing by Cynthia Osterman and Peter Cooney