TikTok is facing fresh legal challenges after a group of state attorneys general accused the social media giant of exploiting children financially through its in-app virtual currency, TikTok Coins. Among the lawsuits filed, one from Brian Schwalb, the attorney general for Washington, D.C., has drawn significant attention for its focus on TikTok’s unlicensed digital transactions and the alleged financial harm caused to young users.
Schwalb’s lawsuit claims that TikTok is operating an unregulated currency system akin to a casino, allowing children to purchase virtual tokens with real money, which can then be exchanged for digital gifts. These gifts can be sent to other users, particularly those livestreaming on the platform. However, TikTok allegedly takes up to 50% of the money spent in these transactions without obtaining the required licenses to facilitate such financial exchanges, violating the district’s money transmission laws.
A major issue raised in the lawsuit is the company’s lax age-verification system, which children can reportedly bypass with ease, allowing them to make purchases without adequate oversight. The lawsuit argues that this system “substantially harms children” by enabling them to spend real money on virtual items, with TikTok profiting from the transactions. The concern extends to how TikTok has borrowed tactics from the gaming industry, creating a marketplace where young users are drawn in by the allure of colorful digital items without understanding the financial implications.
TikTok declined to comment on the lawsuit but has previously stated that it disagrees with the claims, calling them “inaccurate and misleading.”
Experts in tech and online marketplaces are weighing in on the issue. Gabriel Robins, a computer science professor at the University of Virginia, likened the situation to the manipulation seen in some online games, where children are enticed into spending money without realizing the true cost. "They don’t understand that their money—or their parents’ money—is being scammed," Robins explained.
As the world of social media increasingly intertwines with online commerce, particularly through content creation and digital currencies, this lawsuit could have broader implications for other platforms. Brooke Erin Duffy, a professor at Cornell University, noted that the outcome of this case might prompt other companies to rethink how they regulate financial transactions within their ecosystems, especially when minors are involved.
The legal battles surrounding TikTok’s practices signal a growing concern about how tech giants manage their platforms and the impact of their monetization strategies on vulnerable users. The lawsuits could potentially reshape the way platforms handle digital currency and protect younger users from financial exploitation.
