WHEN VIDEO GAMES PLAY YOU: REGULATION AND REFORM IN THE ERA OF MICROTRANSACTIONS

Author: Sidonie Mangeot, Associate Editor

I. Background

Video games are deeply imbedded in modern American culture, with 190.6 million Americans aged 5 to 90 playing them in 2024.[i]  However, alongside their growth, concerns have emerged about microtransactions, often seen as a dark side of the industry.[ii]  Microtransactions are in-game purchases made with real money, separate from the initial purchase of the game.[iii]  To complete a microtransaction, consumers usually convert real money into in-game currency, which they then use for the purchase.[iv]  For example, players may purchase character outfits, account inventory expansions, or even simply decorative icons that appear next to the player’s online username.[v] 

Although these small purchases may seem innocent, they can lead to addiction, resulting in excessive, compulsive spending.[vi]  Each in-game transaction triggers the release of dopamine, and as players continue to make purchases, they require larger transactions to achieve the same level of satisfaction.[vii]  This danger is heightened by the fact that in-game currencies often mislead players by “hav[ing] a higher numerical value than their real-world counterpart.”[viii]  Over the past few years, a subset of microtransactions known as “loot boxes” have dominated discussion.[ix]  Defined by the Federal Trade Commission as purchasable items containing random assortments of virtual rewards,[x] loot boxes are based on statistical chance, bearing a striking resemblance to gambling.[xi]  In fact, some countries have classified loot boxes as gambling, with some countries banning them outright.[xii] 

Studies show that individuals who make more microtransactions are significantly more likely to develop “internet gaming disorder,”[xiii] a life-disrupting condition characterized by symptoms such as emotional withdrawal, using gaming as a coping mechanism, deceiving others about gaming habits, and persistently playing despite negative consequences.[xiv]  A 2019 study of French free-to-play gamers found in-game spending to be “one of the strongest predictors of disordered gaming,” with male students aged 18 to 29 being the most likely to spend money and develop the condition.[xv] 

Excessive spending on microtransactions has gained attention online, with many gamers expressing regret over their impulsive purchases.[xvi]  Despite this, it is obvious that video game developers are keen to capitalize on these spending trends, as microtransactions make up over half of the revenue generated by some of the largest game companies.[xvii]  Some of these companies use predatory practices to drive further spending through tactics like intrusive solicitations and the collection of personal data to tailor purchase offers.[xviii] 

In response, the Consumer Financial Protection Bureau issued a Consumer Advisory in August 2024 to raise awareness among parents of microtransactional issues.[xix]  The agency explained that games are designed to engage players with immediate rewards, which are made more appealing by the gaming community’s perception of their “immense value” and peer encouragement to collect them.[xx]  The agency also noted that design strategies like loot boxes and confusing exchange rates between real and in-game currencies further encourage spending.[xxi]

II. Legal Battles Related to In-Game Spending

Despite growing concerns over microtransactions, legal challenges remain complex.  The Federal Trade Commission acts as one line of defense against predatory practices, recently refunding more than $72 million dollars to consumers who were tricked into making purchases on Fortnite by sneaky game design practices.[xxii]  However, litigating in-game spending remains difficult as states primarily define and regulate gambling.[xxiii] For example, after spending thousands of dollars on loot boxes, a California man attempted to argue that the use of loot boxes in a video game qualifies as “unlawful gambling” under a California statute.[xxiv]   However,  his argument failed, since the non-tradeable, virtual contents did not fit the definition of “things of value” under California’s gambling law.[xxv]  This case highlights an issue in loot box lawsuits: if the law does not consider in-game microtransactions as “gambling,”[xxvi] it can be difficult to win these cases.  

Similarly, the binding contractual nature of end user license agreements also block litigation.[xxvii]  End user license agreements are contracts between software publishers and users,  and they often include choice of law and forum provisions.[xxviii]  For example, a minor and his father were bound to arbitrate the attempted injunction of the sale of loot boxes within a video game because of a pop-up end user license agreement at the beginning of the game.[xxix]  Ultimately, legal definitions and end user license agreements create barriers, leaving consumers with limited options to challenge microtransactional practices.[xxx]

III. Current Federal Consumer Protection Efforts

With this backdrop in mind, Senator Josh Hawley introduced “The Protecting Children from Abusive Games Act” in 2019.[xxxi]  It proposed a total ban on pay-to-win microtransactions and loot boxes in all games targeted at children under the age of 18.[xxxii]  The Act exempted purely cosmetic features, game add-ons, and transactions related to increasing game difficulty.[xxxiii]  The Act was introduced in Congress and was referred to a Senate committee on May 23, 2019.[xxxiv]  However, since the Act never reached a vote during that congressional session, it was effectively killed.[xxxv]  Nevertheless, its content could be reintroduced in a new bill or included in larger legislation in the future.[xxxvi]

On January 10, 2025, the CFPB proposed expanding the application of the Electronic Fund Transfer Act.[xxxvii]  This proposed rule would improve consumer protections for purchases made on video game platforms by enabling consumers “to dispute erroneous or fraudulent transactions.”[xxxviii]  If enacted, the rule would mark one step closer toward consumer protection in the gaming industry. However, additional regulation will be necessary to fully address the widespread issue of microtransactions.

IV. Proposed Recommendations to the States

While federal legislation is one option, states can also strengthen consumer protection.[xxxix]  Legal commentary has repeatedly suggested that state action is necessary to regulate loot boxes effectively.[xl]  Rather than advocating for a complete ban, these commentators propose increased regulation.[xli]  Age requirements paired with ID authentication for certain shop items could protect younger audiences from both microtransactions and in-game shop design tricks aimed at boosting spending, as well as prevent unrestrained spending opportunities.[xlii]  However, this approach might face consumer backlash over privacy concerns and authentication hassles.[xliii]

States have repeatedly considered and ultimately failed to classify loot boxes as gambling.[xliv]  Even without labelling them as such, states could still take steps to address broader microtransactional concerns.[xlv]  To improve exchange rate transparency,[xlvi] states could require clear in-game warnings that display in-game currencies alongside their real cash value.  To prevent prolonged spending sprees, states could require pop-ups when timeframe-based spending thresholds are met, asking a consumer if they would like to continue with the purchase.  This could break the momentum of microtransactions and help consumers pause and consider ending their in-game spending.  Finally, states could reconsider the language in certain statutes to cover microtransaction gambling.

V. Conclusion

Manipulative game design and increasing research into the effects of in-game spending will surely cause debates around regulation to persist.[xlvii]  Federal efforts such as proposed legislation and other regulatory actions have aimed to address these concerns but are likely not enough.[xlviii]  State-level initiatives, such as enhancing consumer visibility through real-world currency conversions and spending alerts, offer a practical path forward.  As gaming evolves, so must our consumer protections.  By raising consumer awareness and urging lawmakers to advance state and federal legislation, we can create a gaming environment that prioritizes safeguards for younger players and ensures transparency for all.  This way, we can enjoy the gaming industry’s innovations while prioritizing consumer protection.

[i] 2024 Essential Facts About the U.S. Video Game Industry, ENT. SOFTWARE ASS’N, https://www.theesa.com/resources/essential-facts-about-the-us-video-game-industry/2024-data/ (last visited Feb. 22, 2025).

[ii] Tyler Amano-Smerling, Pay to Play: The Ethics of Video Game Economics, VITERBI CONVERSATIONS IN ETHICS (Apr. 27, 2021), https://vce.usc.edu/volume-5-issue-1/pay-to-play-the-ethics-of-video-game-economics/.

[iii] FTC Video Game Loot Box Workshop, F.T.C. (August 2020), https://www.ftc.gov/system/files/documents/reports/staff-perspective-paper-loot-box-workshop/loot_box_workshop_staff_perspective.pdf.; Eddie Makuch, Microtransactions, Explained: Here’s What You Need To Know, GAMESPOT (Nov. 20, 2018), https://www.gamespot.com/articles/microtransactions-explained-heres-what-you-need-to/1100-6456995/; Luke Dowling, Gaming Safely: Understanding In-Game Purchases and Their Impact on Kids, FAM. ONLINE SAFETY INST. (Jul. 8, 2024), https://www.fosi.org/good-digital-parenting/gaming-safely-understanding-in-game-purchases-and-their-impact-on-kids.

[iv] Insert More Coins: The Psychology Behind Microtransactions, TOURO UNIV. WORLDWIDE (Feb. 25, 2016), https://www.tuw.edu/psychology/psychology-behind-microtransactions/.

[v] Amano-Smerling, supra note ii.

[vi] PJ Haarsma, The Rising Concern of Microtransaction Addiction in Modern Gaming, STRUGGLING WITH ADDICTION (Sep. 29, 2023), https://strugglingwithaddiction.com/the-rising-concern-of-microtransaction-addiction-in-modern-gaming/.

[vii] Id.

[viii] Amano-Smerling, supra note ii.

[ix] FTC Video Game Loot Box Workshop, supra note iii; Luke Dowling, supra note iii.; Kourosh Azin, How Pay-to-Win Makes Us Lose: Introducing Minors to Gambling through Loot Boxes, 61 B.C. L. REV. 1577, 1577-1581 (April 2020).

[x] FTC Video Game Loot Box Workshop, supra note iii.

[xi] Amano-Smerling, supra note ii.

[xii] Nicholas Straub, Every Country With Laws Against Loot Boxes (& What the Rules Are), SCREENRANT (Oct. 5, 2020), https://screenrant.com/lootbox-gambling-microtransactions-illegal-japan-china-belgium-netherlands/.

[xiii] Jean-Michel Costes & Céline Bonnaire, Spending Money in Free-to-Play Games: Sociodemographic Characteristics, Motives, Impulsivity and Internet Gaming Disorder Specificities, INT. J. ENV’T RSCH. AND PUB. HEALTH (Nov. 25, 2022) at 1, 8 (quoting Shaun Stephen Garea et al., Meta-Analysis of the Relationship between Problem Gambling, Excessive Gaming and Loot Box Spending, INT. GAMBLING STUD. (Apr. 26, 2021) at 460, 460-479).

[xiv] James Sherer, Internet Gaming, AM. PSYCH. ASS’N (Jan. 2023), https://www.psychiatry.org/patients-families/internet-gaming.

[xv]Costes & Bonnaire, supra note xiii.

[xvi] E.g. Why Did I Buy 236 Skins Just to Mainly Use Like 15-20? Am I Stupid?, ZLEAGUE (Feb. 10, 2024), https://www.zleague.gg/theportal/why-did-i-buy-236-skins-just-to-mainly-use-like-15-20-am-i-stupid/.

[xvii] Azin, supra note ix.

[xviii] Daniel L. King & Paul H. Delfabbro, Predatory Monetization Schemes in Video Games (e.g. ‘Loot Boxes’) and Internet Gaming Disorder, 113 SOC’Y FOR STUDY ADDICTION 1967, 1967 (2018).

[xix] Consumer Advisory: Video Games are Targeting Your Children to Get Into Your Wallet, CFPB (Aug. 28, 2024), https://www.consumerfinance.gov/about-us/newsroom/consumer-advisory-video-games-are-targeting-your-children-to-get-into-your-wallet/.

[xx] Id.

[xxi] Id.

[xxii] FTC Sends Refund Payments to Consumers Impacted by Epic Games’ Unlawful Billing Practices, F.T.C. (Dec. 9, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/12/ftc-sends-refund-payments-consumers-impacted-epic-games-unlawful-billing-practices.

[xxiii] Cong. Rsch. Serv., RS21984, Internet Gambling: An Abridged Overview of Federal Criminal Law (2012).

[xxiv] Tran v. Aniplex of Am., No. 22STCV23278, 2023 Cal. Super. LEXIS 18058, at *1-25 (Ca. Super. Ct. 2023).

[xxv] Id.

[xxvi] Id.; Azin, supra note ix, at 1606.

[xxvii] E.g. B.D. v. Blizzard Entm't, Inc., 292 Cal. Rptr. 3d 47, 57-59 (Cal. Ct. App. 2022).

[xxviii] Michael L. Rustad, Computer Contracts § 1.02 (Matthew Bender); Michael L. Rustad, Software Licensing, Cloud Computing Agreements, Open Source, and Internet Terms of Use § 1.06 (Matthew Bender, 2016-2017).

[xxix] B.D. v. Blizzard Entm’t, supra note xxvii.

[xxx] E.g. Id.; e.g. Tran v. Aniplex of Am., supra note xxiv.

[xxxi] S.1629 – 116th Congress (2019-2020): A Bill to Regulate Certain Pay-to-Win Microtransactions and Sales of Loot Boxes in Interactive Digital Entertainment Products, and for Other Purposes, S.1629, 116th Cong. (2019), https://www.congress.gov/bill/116th-congress/senate-bill/1629/text.

[xxxii] Id.

[xxxiii] Id.

[xxxiv] Id.

[xxxv] S. 1629 (116th): A Bill to Regulate Certain Pay-to-Win Microtransactions and Sales of Loot Boxes in Interactive Digital Entertainment Products, and for Other Purposes, GOVTRACK.US, https://www.govtrack.us/congress/bills/116/s1629 (last visited Feb. 8, 2025).

[xxxvi] Id.

[xxxvii] CFPB Seeks Input on Digital Payment Privacy and Consumer Protections, CFPB (Jan. 10, 2025), https://www.consumerfinance.gov/about-us/newsroom/cfpb-seeks-input-on-digital-payment-privacy-and-consumer-protections/.

[xxxviii] Id.

[xxxix] CFPB, Strengthening State-Level Consumer Protections (2025).

[xl] Azin, supra note ix, at 1606; Jennifer Guillen, Loot Boxes and Potential Regulation as a Form of Gambling, USC INTELL. PROP. AND TECH. L. SOC’Y (Jan. 14, 2021), https://sites.usc.edu/iptls/2021/01/14/loot-boxes-and-potential-regulation-as-a-form-of-gambling/ (quoting David J. Castillo, Unpacking the Loot Box: How Gaming’s Latest Monetization System Flirts with Traditional Gambling Methods, 59 SANTA CLARA L. REV. 165 (2019-2020)). 

[xli] Azin, supra note ix, at 1606; Guillen, supra note xl.

[xlii] See Sarah Hunter-Lascoskie, Age Verification Regulations May Finally Be Taking Hold in the US – What Does it Mean for Digital Identity?, AUTHENTICID (Nov. 21, 2024), https://www.authenticid.com/user-experience/age-verification-regulations-may-finally-be-taking-hold-in-the-us-what-does-it-mean-for-digital-identity/.

[xliii] See Id.

[xliv] Azin, supra note ix, at 1591-1592; Guillen, supra note xl.

[xlv] See Amano-Smerling, supra note ii (noting that players may be mislead by game currencies and conversion rates, especially when a large difference between real and in-game currency values causes the true financial impact to be masked).

[xlvi] See Id.

[xlvii] E.g. FTC Sends Refund Payments to Consumers Impacted by Epic Games’ Unlawful Billing Practices, supra note xxii; e.g. King & Delfabbro, supra note xvii; e.g. Costes & Bonnaire, supra note xiii; e.g. Nerilee Hing et al., Adolescents Who Play and Spend Money in Simulated Gambling Games Are at Heightened Risk of Gambling Problems, INT. J. ENV’T RSCH. AND PUB. HEALTH, Aug. 16, 2022, at 1, 3 (quoting Tess Armstrong et al, An Exploration of How Simulated Gambling Games May Promote Gambling with Money, INT. GAMBLING STUD., Jan. 10, 2018, at 1165, 1165-1184).

[xlviii] S.1629 – 116th Congress (2019-2020): A Bill to Regulate Certain Pay-to-Win Microtransactions and Sales of Loot Boxes in Interactive Digital Entertainment Products, and for Other Purposes, supra note xxxi; CFPB Seeks Input on Digital Payment Privacy and Consumer Protections, supra note xxxvii.