The COPPA Compliance Crisis: A Looming Liability in the Mobile Advertising Ecosystem

The Children's Online Privacy Protection Act (COPPA) has long served as a cornerstone of U.S. data privacy law, mandating strict safeguards for children's personal information online. However, a growing body of evidence suggests that the mobile advertising ecosystem-particularly platforms like Google Ad Exchange, Meta, and AppLovin-is systematically failing to meet these obligations. Recent enforcement actions, investigative reports, and regulatory scrutiny highlight a crisis of compliance, exposing both ad tech giants and app developers to escalating legal, reputational, and financial risks. For investors, the implications are clear: COPPA violations are no longer isolated incidents but systemic vulnerabilities that demand urgent attention.

Systemic Risks in the Ad Tech Ecosystem

According to a report by Pixalate, a staggering 90% of non-compliant child-directed apps in the U.S. feature Google Ad Exchange in their ads.txt files, while Meta and AppLovin appear in 58% and 54% of cases, respectively. These platforms facilitate monetization for apps that often fail to obtain verifiable parental consent (VPC), a core COPPA requirement for apps targeting children under 13. Pixalate's analysis of 1,149 apps revealed that sensitive data-including device IDs, IP addresses, and geolocation-is routinely shared in ad bidstreams, amplifying privacy risks.

This pattern underscores a critical flaw: ad tech platforms are not merely passive participants but enablers of non-compliance. By allowing apps to monetize without ensuring COPPA adherence, these platforms create a legal gray area where developers and third-party SDKs can evade accountability. The Federal Trade Commission (FTC) has made it clear that developers are responsible for the actions of embedded SDKs, meaning even indirect involvement in data collection without VPC could trigger liability.

Case Studies: Enforcement Actions and Scrutiny

The FTC's recent settlement with Apitor Technology, a toymaker, illustrates this principle. The company allowed an SDK to collect children's geolocation data without VPC, leading to a regulatory penalty. Similarly, Google faces a $30 million preliminary settlement in a California class action lawsuit over alleged COPPA violations on YouTube, following a $170 million FTC settlement in 2019 for similar misconduct. These cases demonstrate the FTC's willingness to impose recurring penalties on platforms that fail to adapt to evolving compliance standards.

AppLovin, meanwhile, is under dual scrutiny from the SEC and state attorneys general over data collection practices, including allegations of assigning unique identifiers to children without consent and serving inappropriate content. Short-seller reports have further alleged that the company's ad-tech infrastructure facilitates COPPA violations, exposing it to reputational and legal fallout. Such investigations highlight the growing regulatory appetite to hold ad tech platforms accountable for their role in systemic non-compliance.

Regulatory Landscape and Enforcement Trends

The FTC's 2025 guidance reinforces that COPPA compliance obligations extend beyond app developers to third-party vendors, including ad exchanges and SDK providers. This shift places platforms like Google Ad Exchange, Meta, and AppLovin under heightened scrutiny, as their services are embedded in thousands of apps. Pixalate's findings-that these platforms dominate the ad inventory of non-compliant apps-suggest they may be complicit in facilitating COPPA violations.

State attorneys general are also intensifying their focus. California's aggressive enforcement of COPPA-related claims, coupled with multi-state probes into data privacy practices, signals a broader trend of decentralized regulatory action. For ad tech firms, this means compliance costs are rising, with potential penalties ranging from multi-million-dollar settlements to operational overhauls.

Implications for Investors

The COPPA compliance crisis presents a dual threat: regulatory penalties and reputational damage. Platforms that enable non-compliant apps risk being perceived as complicit in exploitative data practices, eroding consumer trust and investor confidence. For example, AppLovin's ongoing investigations have already triggered market volatility, with short-sellers highlighting its "ugly underbelly" of privacy violations.

Investors should prioritize companies that proactively address COPPA risks. This includes ad tech firms with privacy-first infrastructures, such as transparent data governance models and tools to audit third-party SDKs. Conversely, platforms that rely on opaque bidstreams or fail to enforce VPC compliance may face escalating costs from litigation, regulatory fines, and brand erosion.

Conclusion

The COPPA compliance crisis is a ticking time bomb for the mobile advertising ecosystem. As regulators close the loophole between app developers and third-party platforms, the legal and reputational stakes for ad tech giants like Google, Meta, and AppLovin are rising sharply. For investors, the lesson is clear: COPPA compliance is no longer optional-it is a strategic imperative. Companies that fail to adapt will find themselves on the wrong side of both the law and the market.