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Facebook’s “Friendly Fraud” Problem

Facebook is dealing with a massive class action lawsuit that may see them refunding millions of dollars to parents who were the victims of so-called “friendly fraud.” The complaint alleges that since around 2011, Facebook has permitted minors to unwittingly make multiple transactions on their parent’s credit card through playing online games at the social media platform’s website.

Social-Media-37877338-001Kids love to play games like Angry Birds, Barn Buddy, Ninja Saga and others on Facebook. Frequently, they log in to the website using their parent’s Facebook account, though they also may have an account of their own. If the parent lets the child use their credit card to make an in-game purchase just once in one of Facebook’s games, the system stores the card number. Subsequently, the child makes multiple charges as they play, sometimes adding up to hundreds or thousands of dollars that parents may not be aware of until weeks later.

Evidence suggests that Facebook was aware of the loophole and that employees took a fairly hard line against allowing refunds for a practice that they referred to as “friendly fraud” or “FF.”

A paper trail from within Facebook shows conflicting viewpoints on the practice. One email from a Facebook employee mentions that game developers should be counseled to block friendly fraud transactions. Other internal documents reveal that Facebook actually educated developers about friendly fraud and encouraged them to enable such practices in their games.

When parents were stonewalled in their attempts to get refunds from Facebook, they contacted their credit card companies in attempts to invalidate the charges made by their children. Once again, internal Facebook documents show that the company was aware of an inordinate number of chargebacks associated with games like Angry Birds. However, there was concern that taking steps to minimize or eliminate friendly fraud transactions might also interfere with legitimate transactions.

The California lawsuit is still ongoing, but the recently published documents concerning it are illuminating. Business owners and executives may want to consider the transparency of their transactions and how well they communicate pricing strategies to customers in order to avoid similar confusion.

If you a California business owner with a legal challenge or issue, I invite you to call and let’s find out whether we are a great fit for each other. I can be reached at 818-461-8500 or via the Contact form on this page.

Richard Oppenheim