Genshin Impact fined $20 million by FTC for scamming children with loot boxes

Monetization works the same way on nearly all of our favorite games for Android, and even on other platforms — through collaborations and in-app purchases. Gamers have also put several popular titles on blast for single and multi-player campaigns that aren’t rewarding, or are just impossible to complete without paid upgrades. The popular open-world action title Genshin Impact recently landed in hot water with the authorities, which has resulted in sweeping changes to in-app loot box purchases.

Genshin Impact lets players win loot boxes, also called “wishes,” with normal gameplay, or purchase some with in-game currency, which can be purchased using real money. The monetization strategy is as old as time, but Genshin Impact developers configured loot boxes to deliver weapons, weapon skins, and even new characters with varying odds, making some items significantly rarer and harder to obtain than others, bordering on gambling. It likely promoted loot box purchases in the hopes of winning said items, but with the details about the odds tucked away in fine print elsewhere.

With these practices, Genshin Impact distributor Cognosphere LLC (operating under the name HoYoverse) attracted the ire of the US Federal Trade Commission (FTC) and Department of Justice (DoJ). Acting on a referral by the FTC, the DoJ alleged that the game violated a children’s privacy law and misled users about the actual financial implications of loot box purchases for rare prizes (via FictionHorizon).

It’s easy to see how the conversion of real dollars into in-game cash acts as an obfuscation layer that prevents users from translating loot box prices into USD or other real-world currencies directly. Add to that the multiple in-game conversions and exchange rates in “unusual denominations,” which exacerbate the complexity. As for the odds of winning five-star characters only available through loot boxes, the complaint alleged the spending process dilutes the gravity of how much real money is required to obtain these special items. Moreover, the government bodies found the marketing tactics used to lure players were unfair to children and teens, who are also susceptible to mental and monetary harm from the aforementioned tactics.

A heavy fine and changes coming to the game

Cautionary tale for other game developers

To settle these allegations against the popular title, Cognosphere LLC has offered to pay $20 million as a penalty to the FTC. HoYoverse was also allegedly violating the Children’s Online Privacy Protection Rule (COPPA), that mandates parental consent before collecting personal data from users aged 13 and under. The company was aware of several under-13 users, but didn’t require parental consent for data collection through Genshin Impact. The data included user IDs, player progress, settings, friend lists, etc. shared with third parties such as analytics firms and advertisers.

To address the COPPA violations, the FTC proposes that Genshin Impact prevents players under 16 from purchasing loot boxes without parental consent. Other changes for compliance include the deletion of all data previously collected from children, including clearer representation of the odds of winnings in loot boxes, disclosing clear exchange rates for multi-tier currency exchanges, and offering players an option to buy loot boxes directly with real money.

While the proposed changes are ambitious and suitable resolutions to the allegations, and Cognosphere has agreed to settle, a federal judge still needs to sign off on it for the changes to come into effect. However, changes will be limited to the US. A couple of years ago, popular YouTube creator Arun Maini of Mrwhosetheboss fame also unraveled the layers to potentially dangerous spending habits promoted by such games.