Do Not Enter Your Credit Card Information Into Facebook
If 100 kids make “in-game purchases” without their parent’s knowledge, some of the parents will figure this out and call up to have the charge reversed and some will simply pay the charges. If enough parents pay the charges, the company profits.
It can be difficult to know when we are downloading digital goods like apps or games whether we are spending money. I am sure we have all had the experience of downloading an app or a game that we thought was free until we see a charge for it on our credit card statement.
If it’s difficult for adults to know the difference, it’s nearly impossible for children.
It would appear Facebook for turned that confusion into a business model for years according to a recent article in Forbes. According to the article, Facebook was turning a blind eye to a large volume of “accidental” mobile game purchases that children were making using their parent’s credit cards.
In some cases, kids racked up thousands of dollars on their parent’s credit cards through purchases of mobile “Facebook video games”.
Deceptive Business Practices?
A credit card chargeback is simple. If you see a transaction on your credit card statement you can call up your credit card company and have them reverse the charge.
This process is designed to protect consumers from falling victim to credit card fraud.
The credit card company reverses the transaction and takes the funds back from the merchant where the suspect transaction took place (you didn’t think the credit card company would refund you out of their pockets?).
In addition to having sale reversed, the merchant also must pay a fee to the credit card company referred to as a “chargeback fee”, usually around 2%. So, if a merchant made a $100 sale and the customer called the credit card company to have it reversed, the merchant would pay the $100 back plus a $2 chargeback fee.
As mentioned, the standard chargeback fee for many businesses is 2%. The more often a business has chargeback requests made against them the higher the fee.
This is to disincentivize businesses from engaging in deceptive business practices. Facebook’s chargeback fee was 9%, 18 times higher than the industry average. That would indicate an extremely deceptive business practice.
That is backed up in the Forbes article which quotes many internal memos within Facebook that would indicate they knew kids were racking up huge debts on their parent’s credit cards.
The New Economics of Video Games
As I’ve written before, the economics of video games have changed dramatically. Gone are the days of transparent pricing for video games. You want to play Super Mario Bros? Give Nintendo $59.99 and it’s yours.
Today one of the most lucrative business models is “free to play” video games. Of course, they are not actually free. If you want to progress past a certain point in the game, you must make “in-app purchases” to proceed.
The idea is quite simple. Give you a taste of the game, get you hooked and then keep charging you every time you want to progress to the next level of the game.
As previously mentioned, it can be very difficult for children to know if they are spending “Real” money to play the next level of the game.
I have personally watched my Nephew rack up over $100 in less than an hour playing one of these games.
- The first few levels of the game were free but after he cleared those, I noticed a message pop up on the screen that said to play the next level you would have to pay a $9.00 fee.
- Each time it popped up, he mashed the controller so quickly he accepted the charge (the default) before I even had time to warn him about the cost.
- I asked him if his Mom and Dad were okay with paying the $9.00 and he replied “yes”. I knew it was dubious whether there was any truth to that, but I thought it was only a $9.00 charge, maybe they were okay with it.
- This happened another 10 times over the next hour, each time he mashed the controller so quickly I could not stop him.
- After a few transactions, I suggested we put the game away. Based on his response I knew if I turned the game off, I would be facing a full-blown meltdown. As it was not my kid or my money, I let this play out a little while longer. Long enough for him to charge nearly $100 to his parent’s credit card.
The most amazing thing about the whole thing is when I told his parents about this, they did not seem either surprised or concerned. They said they would call up the credit card company and tell them their son made these charges and have them revered.
I was blown away about how casual they were with the whole thing, I had the impression this is a recurring event. I decided to do some googling of this subject and it is such a common event it has its own term “friendly fraud”.
Friendly fraud is when a consumer buys a digital product (like a level in a video game) and then calls up the credit card company to have the purchase reversed.
Since there is a chargeback fee applied to the business, I would almost feel bad for them having to pay these chargeback fees. Then I read the Forbes article and learned that digital businesses have been knowingly profiting from kids running up “in-game purchases” on their parent’s credit cards.
It’s basically a numbers game. If 100 kids make “in-game purchases” without their parent’s knowledge, some of the parents will figure this out and call up to have the charge reversed and some will simply pay the charges. If enough parents pay the charges, the company profits.
A Simple Solution
There is a simple solution to avoid this problem. Do not enter your credit card number into your Facebook account. The only reason kids can run up huge charges through these video games is because the parents have already given Facebook or any other digital business access to their credit card information.
If you refuse to enter your credit card information, that will force your kid to have a conversation with you beforehand about whether it’s okay to pay for the next level of the game.
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions