Credit Karma to Pay $3M to Users for False Preapproved Offers

Credit Karma False Preapproved Offers

Credit Karma to Pay $3M to Users for False Preapproved Offers

The Federal Trade Commission (FTC) has ordered Credit Karma to pay its users $3 million after pushing false preapproved credit cards on consumers and harming their credit scores.

The FTC alleges that the company used claims that consumers were “pre-approved” and had “90% odds” to entice them to apply for offers that, in many instances, they ultimately did not qualify for.

“Credit Karma’s false claims of ‘pre-approval’ cost consumers time and subjected them to unnecessary credit checks,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection said in a statement.

Credit Karma provides tools that allow consumers to monitor their credit scores and credit reports. To use Credit Karma’s services, consumers must provide the company with a variety of personal information, allowing Credit Karma to amass over 2,500 data points on each consumer, including credit and income information. Credit Karma then uses that information to send targeted advertisements and recommendations for credit cards.

The FTC’s proposed complaint alleges that, from February 2018 to April 2021, Credit Karma falsely told many consumers that they had been “pre-approved” for credit offers, leading consumers to apply, incur a hard inquiry on their credit reports, and, if they are denied, potentially damage their credit scores unnecessarily. According to the FTC’s complaint, Credit Karma knew that its purported “pre-approvals” conveyed false “certainty” to consumers. The company knew that consumers were more likely to click on offers saying “preapproved” than those saying they had “excellent” odds of being approved. 

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Under the FTC Act, the FTC has the authority to take action against companies for engaging in unfair and deceptive acts or practices. The FTC’s proposed order against Credit Karma requires the company to:

  • Stop deceiving consumers: The FTC’s order prohibits Credit Karma from deceiving consumers about whether they are approved or pre-approved for a credit offer, as well as about the odds or likelihood that a consumer will be approved for a credit offer.
  • Pay $3 million in consumer redress: The order requires Credit Karma to pay $3 million to the FTC, which will be sent to consumers who were harmed by the company’s actions.
  • Preserve records: To help prevent further use of deceptive dark patterns, the order requires Credit Karma to preserve records of any market, behavioral, or psychological research, or user, customer, or usability testing, including any A/B or multivariate testing, copy testing, surveys, focus groups, interviews, clickstream analysis, eye or mouse tracking studies, heat maps, or session replays or recordings.

You can read the agency’s full order here.

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