Credit Karma ordered to pay $3 million to consumers for false pre-approved credit card offers

The Federal Trade Commission said it is taking action against Credit Karma by ordering them to pay $3 million to consumers after tricking them with false pre-approved credit card offers.

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According to a news release from the FTC, it ordered Credit Karma to pay $3 million to consumers who were told that they were “pre-approved” and had a 90% chance when applying to credit cards that the consumer didn’t end up actually qualifying for.

“Credit Karma’s false claims of ‘pre-approval’ cost consumers time and subjected them to unnecessary credit checks,” Samuel Levine, Director of the FTC’s Bureau of Consumer Protection said in the news release. “The FTC will continue its crackdown on digital dark patterns that harm consumers and pollute online commerce.”

Credit Karma did not admit to any wrongdoing but has settled with the FTC.

According to WFLD, Credit Karma has also been ordered to stop making these kinds of deceptive claims and that the $3 million will be sent to consumers but through additional application processes.

The deceptive advertising was shared with Credit Karma consumers from February 2018 through April 2021, according to WFLD.

FTC claims that Credit Karma violated Section 5 of the Federal Trade Commission Act by deceiving consumers about where they were approved and by costing consumers time plus harming their credit score in the process of applying for the cards.

“The complaint alleges that, in response to Credit Karma’s false claims, numerous consumers wasted significant time applying for credit card offers. Additionally, when consumers applied for these offers, third-party financial companies made a “hard inquiry” on their credit reports, which in many instances lowered consumers’ credit scores and harmed their ability to secure other financial products in the future,” the FTC wrote in the news release.

The FTC also claimed that Credit Karma tested the click-through rates of ads that said “pre-approved” versus others that said “excellent,” according to WFLD. The FTC claimed that Credit Karma was aware of the profit being made from the marketing and continued to use the ads. According to WFLD, Credit Karma did in some cases mention that “approval isn’t guaranteed,” but the FTC said those disclaimers were buried.

The FTC ordered Credit Karma to preserve records, in addition, to stop deceiving consumers and to pay $3 million.

Credit Karma released its own statement, disagreeing with the allegations from FTC.

“We fundamentally disagree with the FTC’s allegations about marketing terms that aren’t even in use anymore, but ultimately we reached this agreement to avoid disruption to our mission and maintain our focus on helping our members find the financial products that are right for them,” said Susannah Wright, Chief Legal Officer at Credit Karma, in a news release. “Our industry-leading technology provides the transparency our members need to shop for financial products with more confidence.”

Credit Karma also mentioned that it only gets paid when members are approved for credit cards and personal loans and that it is not paid when consumers get denied.

“Credit Karma’s industry-leading technology provides members with greater transparency into their likelihood of approval for the financial products before they apply, without impacting their credit score. Members shopping for credit cards on Credit Karma have an over 50% higher approval rate than the national average. By better matching people with financial products, Credit Karma allows members to shop with more confidence,” said Credit Karma in the news release.

According to WFLD, the FTC did not say how many consumers were misled by the claims.

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