Financial News

Facebook has become entangled in a dispute over advertising practices after some of its users claimed they received un­authorised charges to their credit cards while playing games on the social networking site.

A class-action lawsuit filed last week accuses Facebook, the world's fourth-largest website, and Zynga, the largest social gaming company, of illegally charging users millions of dollars by getting them to sign up for recurring payments without their knowledge.

The Facebook dispute comes as US lawmakers are looking at other internet marketing practices that can result in un­expected charges for consumers. A technique known as "post-transaction marketing" - in which customers unwittingly sign up for offers that result in recurring credit card charges - is being investigated by a US Senate committee.

Within the social games played on Facebook, so-called "in-game offers" allow users to earn virtual currency by signing up for trials of anything from Netflix (NASDAQ: NFLX - news) , the film rental service, to vitamin supplements. But the lawsuit alleges that in many cases, users are unknowingly authorising ongoing charges to their credit cards.

In one example from the suit, Zynga game player Rebecca Swift signed up for a "risk-free trial" of a green tea herbal supplement. The offer said users could cancel within 15 days and would only be charged $6 for shipping. But after trying to cancel, the user says she was billed $80 at first and another $86 two weeks later.

The suit was filed by Sacramento law firm Kershaw Cutter and Ratinoff on behalf of Facebook users, and accuses Zynga and Facebook of unfair competition and unjust enrichment.

In-game offers accounted for about a third of Zynga's estimated $250m 2009 revenues. The company said it has removed all offers from its games and will reintroduce them only once it can ensure their quality. It declined to comment on the lawsuit.

Facebook says it is not liable because the advertisements were hosted by an outside ad network, and that the ads violated its terms of service and should not have appeared.

John D. Rockefeller, chair of the Senate commerce committee, held hearings last week into post-transaction marketing. The marketing technique involves consumers being shown messages offering discounts or online questionnaires as they complete online purchases. Millions every year click on the wrong button, resulting in unwanted recurring fees.