The Federal Trade Commission (FTC) has imposed a $20 million fine on Cognosphere, the U.S. subsidiary of Chinese gaming developer miHoYo, for deceptive marketing practices and violations of child privacy laws. The penalty is part of a settlement addressing concerns over Genshin Impact’s controversial Loot Box (gacha) mechanics and data collection policies.
What are the key allegations?
The FTC accused Cognosphere of misleading players through predatory gacha mechanics, which involve purchasing randomized in-game rewards using virtual currency bought with real money. Players, including minors, often spent large sums without fully understanding the low odds of obtaining rare items. These mechanics were likened to gambling due to their psychological triggers, such as suspenseful animations and rare prizes.
Additionally, the company violated the Children’s Online Privacy Protection Act (COPPA) by collecting personal information from children under 13 without parental consent. Data such as user IDs and device identifiers were shared with third-party advertisers and analytics firms, breaching privacy regulations.
What settlement terms have been proposed?
Under the settlement, Genshin Impact is barred from offering gacha content to players under 16 without parental consent. The company must delete data collected from children under 13 without proper authorization and ensure compliance with COPPA. Transparency measures will also require clear disclosure of gacha pricing, odds, and features to prevent future exploitation.
Implications for the global gaming industry:
This case highlights growing regulatory scrutiny of loot box practices, which have faced criticism globally for targeting vulnerable players, especially children. Countries like Belgium and the Netherlands have banned loot boxes, while others, including the U.S., are pushing for stricter regulations.
The $20 million fine highlights the FTC’s commitment to holding gaming companies accountable for exploitative monetization strategies. Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, emphasized the importance of protecting children from deceptive gaming practices, calling for more ethical approaches within the industry.
miHoYo acknowledged the settlement and pledged to implement corrective measures, including stricter parental safeguards and compliance with privacy laws. The case signals a shift towards greater accountability in gaming, urging developers to prioritize transparency and consumer protection.
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