Facebook Allowed 'Friendly Fraud' in Order to Profit From Children: Court Documents

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"The difficulty with friendly fraud is that we do not have a clear way to identify it at a purchase level because it looks like a good transaction", an employee wrote, adding that building "risk models" to reduce such cases "would most likely block good TPV [total purchase value]".

In an internal analysis, Facebook found that from October 2010 to January 2011 children spent $3.6 million on games, according to the report. Apparently, 93% of refund requests for the company's Angry Birds game came from parents whose children didn't have permission to spend money on the title through Facebook.

According to the documents, this was a common practice across the site, known as "friendly fraud". The documents cite internal Facebook memos, "employee emails and more", according to GI.biz. They were also unaware their children were able to charge in-game purchases to them "with passwords or any other form of verification".

The report states Facebook had solutions in place to keep children from over spending in browser games hosted by the social network.

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Facebook is under fire for allegedly facilitating over-spending by minors in free-to-play games on Facebook, and internal documents now show that the company chose not to implement security measures that would have prevented kids from unknowingly pouring their parents' money into games. But the documents say Facebook didn't adopt them for fear of undercutting revenue. Bohannan filed a lawsuit after finding it impossible to reach Facebook for a refund. A charge-back rate of 1% is considered "high" by Visa and Mastercard, and the credit card companies will put any business with a 1% charge-back rate on probation programs. At one point, Rovio, the creator of the massive hit Angry Birds, emailed Facebook asking about the refund rates of "5-10 percent" for money spent on the game, which seemed "quite high". Facebook employees knew this. Facebook said it released documents after being instructed by the court, having already voluntarily unsealed documents following a request from the Center for Investigative Reporting.

"They've changed some of their practices but initially when they went into buying and selling things on Facebook, they didn't have proper, safe practices". In 2016, Facebook made a decision to settle the case, paying two families $US5000 ($7044) and agreeing to change its practices. "Facebook works with parents and experts to offer tools for families navigating Facebook", a spokesperson said.

Facebook reportedly allowed developers to obscure real-money transactions, while profiting millions from minors who made purchases without permission from their parents. The average is around 0.5%, according to the Federal Trade Commission (FTC).

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