Tensions between Amazon and the FTC went up another notch today. The Federal Trade Commission (FTC) fired back at Amazon today with a lawsuit over in-app purchases.

The FTC alleges Amazon billed millions of dollars to parents for unauthorized in-app purchases.

In a lengthy press release, the FTC claims Amazon let kids make these purchases through mobile devices such as the Kindle Fire without parental permission.

“Amazon’s in-app system allowed children to incur unlimited charges on their parents’ accounts without permission,” said FTC Chairwoman Edith Ramirez. “Even Amazon’s own employees recognized the serious problem its process created. We are seeking refunds for affected parents and a court order to ensure that Amazon gets parents’ consent for in-app purchases.”

The FTC asserts that there were no password requirements for in-app purchases when Amazon launched in-app charges on its Appstore in November 2011.

The FTC suit says kids’ games encourages children to buy virtual items in a way that doesn’t make clear the costs in virtual and real money. That’s more of an issue with the App creators, though.

Still, the FTC says Amazon did not take the necessary steps to protect account holders from these extravagant charges. The commission highlights internal Amazon communications as well. These communications, according to the FTC, say allowing in-app purchase without password requirements was “clearly causing problems for a large percentage of our customers” and the situation was a “near house on fire.”

Amazon defended themselves in a letter to the FTC earlier this month.

“We have continuously improved our experience since launch, but even at launch, when customers told us their kids had made purchases they didn’t want we refunded those purchases,” wrote Andrew DeVore, Amazon’s associate general counsel.

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Amazon’s letter was in response to the FTC telling the giant retailer they would move forward with a lawsuit if Amazon doesn’t adopt changes to its app store similar to those Apple has adopted in the past.

Whatever happens, perhaps the FTC should turn an eye towards app creators. They’re the ones blurring the lines between fake and real money.

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