Skip to main content

In the annals of marketing, “pre-approved” ranks right up there with “free” and “low-calorie” as a term guaranteed to attract people’s attention. The FTC just announced a $3 million proposed settlement with Credit Karma for allegedly luring consumers in with deceptive promises they had been “pre-approved” for financial products, including major credit cards. The truth? For many of these offers, almost a third of the people who received a “pre-approved” offer from Credit Karma and went to the time and trouble to apply for it were denied.

Credit Karma has a consumer-facing website and mobile app where people can access credit information and find financial calculators and other resources. Credit Karma also uses its site and app to market third-party financial products, including credit cards. To use most of Credit Karma’s tools, people must sign up for an account by providing personal information, including their name, date of birth, and last four digits of their Social Security number. Credit Karma also collects additional information about them from other sources – and the company isn’t fooling about that. The complaint alleges that Credit Karma “has amassed over 2,500 data points, including credit and income information, per member.”

Beginning in 2018 and for at least three years after that, Credit Karma made “pre-approved” claims on its website, through its app, and in email marketing to consumers. For example, one email sent to people with Credit Karma accounts used the subject line “You’re pre-approved for this Amex Card.” When consumers opened the message, they saw a picture of the credit card and the assurance “you’re pre-approved.”

Image
Credit Karma complaint illustration

Credit Karma pushed the “you’re pre-approved” message throughout its marketing campaign, using large type, repetition, and colorful graphics. But even to the extent that Credit Karma made any purported qualifications to that express claim, the “disclaimers” were often smaller and less noticeable than the prominent “pre-approved” claim. And even if consumers read the additional text, Credit Karma assuaged concerns by using reassuring statements like “Approval isn’t guaranteed, but 90% of pre-approved applicants get this card.”

So what really happened when consumers decided to take Credit Karma up on those “pre-approved” offers? According to the complaint, for many offers, almost a third of the “pre-approved” people who applied were denied, based on underwriting review – the actual process used by the financial product companies to make actual approval determinations. What’s more, when consumers applied for credit offers, the complaint alleges that the financial entity made a “hard pull” of their credit report, which generally lowers a consumer’s credit score – hardly what consumers were expecting when they had been told they were “pre-approved.” The upshot: After wasting a significant amount of time applying for offers, many consumers found themselves without the “pre-approved” credit card or loan and with a damaged credit score that made it harder for them to get other financial products in the future.

You’ll want to read the complaint for details, but the FTC alleges that Credit Karma knew what it was doing in emphasizing the “pre-approval” claim and rejecting alternative ways to describe the offers. For example, the company conducted A/B testing to compare versions of its marketing materials and learned that the “pre-approval” claim resulted in an increase in click rates when compared to a version that told people they had “excellent” odds of approval.

Credit Karma could hardly be surprised that its “pre-approval” claims conveyed certainty to consumers. The company’s own training materials advised its customer service representatives they could expect to hear from people asking “I was declined for a pre-approved credit card offer .... How is that possible?!?!?!” Good question. As one Credit Karma employee put it, “If you are told you are pre-approved that should mean you are pre-approved. That shouldn’t mean you have a good chance. If all you have is a good chance then we should call it that.”

In addition to requiring $3 million for consumers harmed by Credit Karma’s actions, the proposed settlement prohibits the company from making deceptive claims about whether people are approved or pre-approved for a credit offer or about the odds or likelihood they’ll be approved. Once the proposed settlement is published in the Federal Register, the FTC will accept comments for 30 days.

What can other companies take from the action in this case?

The FTC will continue to illuminate dark patterns. The 2021  Bringing Dark Patterns to Light event – and multiple law enforcement actions before and since then – demonstrates the agency’s commitment to challenging interfaces, text, design elements, etc., that lure consumers into misleading transactions. The illegal methods companies use vary widely, but they all have one thing in common: They’re grounded in deception or unfairness, in violation of the FTC Act.

Time is money. Under the proposed order, the FTC will return $3 million to consumers whose time was wasted by Credit Karma’s deceptive claims. The message for other companies is that it’s bad business to entice people with misleading representations and then waste their time with an online obstacle course that doesn’t result in the advertised benefit.

Think like a customer. Bringing people in under false pretenses is likely to arouse consumer ire and attract law enforcement attention. That’s why advertisers should review their websites, apps, and marketing materials through the eyes of prospective customers. Part of that consumer-centric approach should include regularly evaluating consumer complaints and listening to what people are saying to your customer service representatives.

It is your choice whether to submit a comment. If you do, you must create a user name, or we will not post your comment. The Federal Trade Commission Act authorizes this information collection for purposes of managing online comments. Comments and user names are part of the Federal Trade Commission’s (FTC) public records system, and user names also are part of the FTC’s computer user records system. We may routinely use these records as described in the FTC’s Privacy Act system notices. For more information on how the FTC handles information that we collect, please read our privacy policy.

The purpose of this blog and its comments section is to inform readers about Federal Trade Commission activity, and share information to help them avoid, report, and recover from fraud, scams, and bad business practices. Your thoughts, ideas, and concerns are welcome, and we encourage comments. But keep in mind, this is a moderated blog. We review all comments before they are posted, and we won’t post comments that don’t comply with our commenting policy. We expect commenters to treat each other and the blog writers with respect.

  • We won’t post off-topic comments, repeated identical comments, or comments that include sales pitches or promotions.
  • We won’t post comments that include vulgar messages, personal attacks by name, or offensive terms that target specific people or groups.
  • We won’t post threats, defamatory statements, or suggestions or encouragement of illegal activity.
  • We won’t post comments that include personal information, like Social Security numbers, account numbers, home addresses, and email addresses. To file a detailed report about a scam, go to ReportFraud.ftc.gov.

We don't edit comments to remove objectionable content, so please ensure that your comment contains none of the above. The comments posted on this blog become part of the public domain. To protect your privacy and the privacy of other people, please do not include personal information. Opinions in comments that appear in this blog belong to the individuals who expressed them. They do not belong to or represent views of the Federal Trade Commission.

ANDREW MARTIN
September 13, 2022

I was a victim of this. I was told that I was pre-approved for a loan but when I applied I was denied and my credit score dropped 31 points.

Leah Moore
September 07, 2022

Credit Karma would tell me I was either pre-approved for a credit card or loan, and I applied 1 time and got denied and my score was severelyaffected. I've been trying for the last few years to build it ip. Since then, I haven't bother to check or look into anymore loans, credit cards, or to refinance my vehicle. I, like most, expect to be compensated as well.

Marquita Grady
September 07, 2022

I was a victim of this..

yosmany cardenas
September 07, 2022

I am a consumer of credit karma and also have applied for credit and was denied multiple times during that period and I applied because they said I was approved as

Donna Rerd
September 07, 2022

This happened to me several times through their app and my credit score suffered. I want reimbursement!!!!!

Steven walters
September 07, 2022

I am very disappointed, me and m u family are already struggling without this waisted time and money with credit carma. They have stripped me from a decent credit score and totally ruined any chances I have with any company to get a loan or credit line.

Toni
September 07, 2022

I was denied twice through the "pre-approval" list on credit karma and need to know how to file a claim.

William Henderson
September 13, 2022

Happened to me several times. I think they even sent another offer last week... I ended up getting denied many times so have given up. I did sign up for their own banking and saving option that is tied to another bank but not credit card related other than being a debit card. Anyhow, after application for the pre-approval offer my scores went down... I refinanced my home and bought a car but now with lower credit score simply due to number of inquiries without new credit and my rates went up as a result... how do we join the class? Where do we register as class victims?

FTC Staff
September 19, 2022

In reply to by William Henderson

If you were denied for a “pre-approved” credit product advertised by Credit Karma, report it to the FTC at www.ReportFraud.ftc.gov. After the settlement is final, the FTC will publish updates on www.ftc.gov/refunds. Don’t pay anything or give personal information to someone who offers to help you get a refund.

Vanessa
September 13, 2022

I have also had this happen multiple times. I was working hard to get my credit back after a divorce and all of their false claims made my score worse.

Nettie Holland
September 13, 2022

Do I file

Vanessa
September 13, 2022

I have also had this happen multiple times. I was working hard to get my credit back after a divorce and all of their false claims made my score worse.

Lakedra T Phillips
September 13, 2022

I am a victim of credit karma. Said I was pre approved for car loans, credit cards and personal loans and resulting in getting denied.

Mike
September 13, 2022

I have been a victim of this multiple times.

Jason S Olesen
September 13, 2022

I have been seeing these offers for as long as I can remember. How do we file a claim??

Angelica P.
September 13, 2022

I have definitely been deceived from Credit Karma numerous times.. I have hard pulls on my account from pre-approvals that did not exist. How do I pursue this?

Kristel Webbe
September 13, 2022

I have been victim of this matter as well. Credit Karma giving me preapprovals and when I applied, I was denied. This made hard enquirers on my credit making my score drop. How do I file a claim?

Shanna Clutts
September 13, 2022

I was also a victim..tied to apply for credit cards and was denied. Went to my bank and found out that my credit score was higher than what Credit Karma stated.

MicKayla Mitchell
September 13, 2022

According to my Credit Karma app I have 35 inquiries on my credit report in last 2 years. This prohibits me from getting any kind of credit because my overall debt is under $5000 including $1500 of current credit card usage. Over last few years I received Credit Karma pre-approval letters at least once a week. I am so happy that something is being done about this

Suzanne Venegas
September 13, 2022

I was one of these consumers. They ran my credit brought down my Fico score for a pre-approved card that I was denied

Scott Tomlinson
September 13, 2022

This happens to me more times then I can count. However they are not the only ones. Credit card companies don't need to try to put all the blame on credit karma.. The same companies they offer send me pre approval offers in the physical mail and deny me the same.

Ashley Domaschko
September 13, 2022

I am a victim of this act. I applied for multiple loans and credit cards because credit karma said I had pre-approval odds, and was denied. My credit score was decrease and affected by this. I am trying to rebuild my credit, so me and my children can buy a home. I want to be compensated from this lawsuit and I might stop using credit karma as I can't trust that the information is true.

FTC Staff
September 19, 2022

In reply to by Ashley Domaschko

If you were denied for a “pre-approved” credit product advertised by Credit Karma, report it to the FTC at www.ReportFraud.ftc.gov. After the settlement is final, the FTC will publish updates on www.ftc.gov/refunds. Don’t pay anything or give personal information to someone who offers to help you get a refund.

James Price
September 13, 2022

Credit karma approved me for a capital one platinum card and immediately after it showed up on my credit as a hard inquiry. I received a statement in the mail as well about my denial when I made to the process of putting a deposit on the credit card.

Felicia
September 13, 2022

I was also told I was approved and it drop my credit score. It's very misleading when I'm told I have a excellent chance of being approved for a credit card.

Nelson Thompson
September 13, 2022

I was pre-approved for credit cards a loans but soon as I applied I was denied my credit was 620 and now it's down to 521 basically 100 points difference and I was ready to purchase my first home,but now I don't see that happening anytime soon so sad how a system you thought you can trust turns out to be soon dihonest.

J.DOLL
September 13, 2022

I have had a rough go at building my credit and have applied multiple times aswell and made things worse.

Nelson Thompson
September 13, 2022

I was pre-approved for credit cards a loans but soon as I applied I was denied my credit was 620 and now it's down to 521 basically 100 points difference and I was ready to purchase my first home,but now I don't see that happening anytime soon so sad how a system you thought you can trust turns out to be soon dihonest.

Annice Thomas
September 13, 2022

This happened to me with a pre approved personal loan. When I applied I was denied and my credit score when down right after that happen.

George Garcia
September 13, 2022

This definitely happened to me and just realizing they were doing this has me shocked…

Joyce Riddle
September 13, 2022

How do I sign up for this lawsuit

Annetta Elam
September 13, 2022

I was sent numerous preapproved offers I applied, they pulled my credit a hard hit and I was denied! I was upset they have your score and accounts tight there so why did they yell me that! Chase bank would also do the same thing!

Danielle Smith
September 13, 2022

I was a victim of this as well. This happened to me Repeatedly.

Brandi madalinski
September 13, 2022

mMy husband and I were also victims to credit Karma's pre-approval offers. I often wondered why they would say you are pre-approved and then u get denied I thought it was not right by anymeans.

Sherah Brooks
September 13, 2022

I wasted my time applying to their "Preapproved" credit how do I file the complaint?

Ryan Swift
September 13, 2022

I also was a victim to this!

FTC Staff
September 16, 2022

In reply to by Ryan Swift

If you were denied for a “pre-approved” credit product advertised by Credit Karma, report it to the FTC at www.ReportFraud.ftc.gov. After the settlement is final, the FTC will publish updates on www.ftc.gov/refunds. Don’t pay anything or give personal information to someone who offers to help you get a refund.

Danielle Smith
September 13, 2022

How do I get added to the settlement? I too am a victim.

Alberta Porter
September 16, 2022

This happened to me as well.

Curtiss Grencho
September 16, 2022

I too, have been a victim of this. I did have some approvals but some of them not so much and it lowered my score. How do I claim compensation?

Chelsea OHaver
September 16, 2022

I was also a victim of this scam. I applied for credit cards that said I was pre approved for and had excellent approval odds then I went and applied thinking I would be approved but I was denied and it made a significant impact on my credit score. I have been working on trying to get my credit score up so I can get a home but applying for these loans and credit cards impacted my score. I expect to be compensated from the results of the lawsuit! After this I will probably stop using credit karma for good!!!

Thomas D
September 16, 2022

I’ve applied for many pre approved , trying to get my credit refinanced , bring down my payments, but instead I’ve had 3 hard inquiry’s and my credit is lower then ever.

Amber Hall
September 16, 2022

This happened to me as well. Do I have to fill out anything in order to file a claim?

Chelsea OHaver
September 16, 2022

I was also a victim of this scam! I was made to believe multiple times I was pre-approved for credit cards and personal loans! I have been using credit karma for a few years now to track my credit score and try to build my credit but when I applied for these credit cards and loans I was denied even though it said I was pre-approved and had excellent approval odds. Due to that my credit score dropped and now I have to wait to get my score up to try and get a home. I do expect to be compensated from this lawsuit!!

Clinton davis
September 16, 2022

I also was told by credit karma that I was pre-approved for multiple credit cards and when I applied for one I was denied, and I'm like how can I be denied if I'm already pre-approved smh I stopped using credit karma for this reason of being lied to especially when at the time I was needing the money for my kids and everything. I'm expecting to be compensated for my time that I lost and the negative hit to my credit score that I'm working hard to build back up.

FTC Staff
September 19, 2022

In reply to by Clinton davis

If you were denied for a “pre-approved” credit product advertised by Credit Karma, report it to the FTC at www.ReportFraud.ftc.gov. After the settlement is final, the FTC will publish updates on www.ftc.gov/refunds. Don’t pay anything or give personal information to someone who offers to help you get a refund.

Betty J Seifer
September 16, 2022

This happened to me as well.......applied for credit card saying it would not impact my credit score....not only was I denied but my credit score dropped😡

Holly Parker
September 16, 2022

This happened to me a few times as well with Credit Carma😡

Cynthia
September 16, 2022

I was told I was pre approved for a loan only to be denied and credit score dropped.

More from the Business Blog

Get Business Blog updates