'Fortnite' maker Epic Games to pay $520 million in record-breaking FTC settlement

(CNN) Epic Games, maker of the hit video game "Fortnite," has agreed to pay a total of $520 million to settle US government allegations that it misled millions of players, including children and teens, into making unintended purchases and that it violated a landmark federal children's privacy law.

As part of the agreement, Epic will pay $275 million to the US government to resolve claims it violated the Children's Online Privacy Protection Act (COPPA) by gathering the personal information of kids under the age of 13 without first receiving their parents' verifiable consent. It is the largest fine the FTC has ever imposed for a rule that it enforces, the agency said Monday.

In a second and separate settlement, Epic will pay $245 million as refunds to consumers who were allegedly harmed by user-interface design choices the FTC claimed were deceptive. That agreement is the largest administrative order in FTC history, the FTC added.

In a blog post addressing the twin settlements, Epic said the agreement reflects an evolution in how US laws are applied to the video gaming industry.

"No developer creates a game with the intention of ending up here," Epic said in the blog post. "We accepted this agreement because we want Epic to be at the forefront of consumer protection and provide the best experience for our players."

FTC Chair Lina Khan said the settlement reflects the agency's heightened focus on privacy and so-called "dark patterns," a term used to describe design elements intended to nudge users toward a company's preferred result.

"Protecting the public, and especially children, from online privacy invasions and dark patterns is a top priority for the Commission, and these enforcement actions make clear to businesses that the FTC is cracking down on these unlawful practices," Khan said in a statement.

The FTC's complaint and proposed settlement dealing with children's privacy was filed in the US District Court for the Eastern District of North Carolina. In addition to the alleged illegal collection of children's data, the FTC also claimed that Epic's default settings for matchmaking and in-game communications exposed children to bullying and harassment.

The allegations of Epic's deceptive design choices were filed as an FTC administrative complaint. The complaint claims Epic made it extremely easy for children to purchase in-game items with a single click or button press without parental approval, resulting in more than one million parental complaints to Epic about unwanted charges.

The FTC further alleged that Epic made it more difficult to cancel purchases of in-game items by burying the option at the bottom of the screen and by requiring consumers to push and hold a button on their controllers to complete the cancellation. Those design choices were allegedly implemented after surveys showed that, when the cancel button was more prominently displayed, accidental charges were the "number one 'reason'" users clicked on the button, the FTC said.

Epic's agreement with the FTC, which is not yet final, prohibits the company from using dark patterns or charging consumers without their consent, and also forbids Epic from locking players out of their accounts in response to users' chargeback requests with credit card companies disputing unwanted charges. The agreement will last for 20 years from the time it is adopted.

In its blog post, Epic said it has agreed with the FTC to implement a feature that explicitly asks Fortnite users whether to save their payment information for future use. The feature is currently live, it added. The company also recently rolled out a more limited version of "Fortnite" for younger players that allows them to access some features while awaiting parental consent but that restricts chat and purchases.

The FTC said that as part of its children's privacy settlement, Epic may no longer enable text and voice chat by default for teenage Fortnite players or those under the age of 13. The company must also establish a comprehensive privacy program and delete the data it allegedly gathered in violation of COPPA.

"We share the underlying principles of fairness, transparency and privacy that the FTC enforces, and the practices referenced in the FTC's complaints are not how Fortnite operates," Epic wrote. "We will continue to be upfront about what players can expect when making purchases, ensure cancellations and refunds are simple, and build safeguards that help keep our ecosystem safe and fun for audiences of all ages."