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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.”

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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.

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Stephanie Thomas
September 15, 2022

When I was working to rebuild my credit I was told I was pre approved to help rebuild my credit and was denied several times. I finally just gave up and waited for it to fall off of my credit to try and reapply for something else. I shouldn’t have trusted them because each time it lowered my score and I still wasn’t approved.

Crystaleigh Hoffman
September 15, 2022

I was a victim of Credit Karma thinking oh here I can receive some financial relief for a bit, and it burned my credit pretty bad after being denied. I expect to be compensated for having to go through all this. $3 wont cut it, so I hope this gets fixed for me the right way

Ebony Thomas
September 15, 2022

I applied for a loan Credit Karma said I was pre-approved for and I got denied.

ACIA WILLIAMS
September 15, 2022

I have been receiving many e-mails from credit karma regarding being pre- approved for years and when I apply I get denied I should definitely be added.

Deanna Estill
September 15, 2022

I have used this app for a credit cards promotions, and was denied in 2018 and 2019 but stopped because I was rejected.. even today they have sent me approval odds just like everyone else that the lied to.

Ebony Lee
September 15, 2022

My credit score has been affected by this as well

FTC Staff
September 16, 2022

In reply to by Ebony Lee

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.

Andrew Steenken
September 15, 2022

My wife and I were tricked by this as well.

Jill B
September 15, 2022

They have also done this to me. It's been ongoing for years. A few months ago I got an e-mail that I was pre-approved for a loan but when I applied I was turned down. Is there a website where I can file a claim to get money from this lawsuit?

Joshua Bass
September 15, 2022

Hello,

My name is Joshua Bass and I also have been affected from the false pre-approved credit card offers from Credit Karma. I have been denied approximately 3-4 times from the offers and have also had my credit score affected when I was denied. I am entitled to the settlement from Credit Karma as well.

ERIC WILLIAMS
September 15, 2022

I also was denied several times after being told I was approved

Leticia hernandez
September 15, 2022

I have created an account with them I have try to delete no luck I always get credit cards offers and
Sign for one just don’t remember for which one but was denied 😡 so they have all my info

Gina Fish-Sligh
September 15, 2022

I was a victim

Richard Alan P…
September 15, 2022

This happened to me, then my credit score went down because of the inquiry from the company that ran a credit check.
I haven't used credit karma for potential cards since then.

Octavia Tucker
September 15, 2022

I also have been a victim of this.

Octavia
September 15, 2022

I also have been a victim of this.

Sherrie Goines
September 15, 2022

This happened to me they are sad

Shirley Greene
September 15, 2022

I have been pre approved numerous times and resulted in hard credit pulls and followed by DENIALS!! I'm sure my name will appear more than a dozen times I always thought that credit karma was official..

Tanisha Hines
September 15, 2022

I was a victim several times. Pre approved for capital one card, and each Time I applied I was denied

Chastain Smith
September 15, 2022

This is a really ugly situation and I applied for CC and a small loan on credit karma because I was told I was pre-approved. As if it wasn’t disappointing to receive the Denied - pre-approval…..my credit score decreased drastically. I’m so glad the FTC caught this and those who were affected can be compensated. I use a EXPERIAN now and will be deleting my credit karma account. This is really disheartening….the least to say.

Melissa Banks
September 15, 2022

I am a victim of this

Chrispon Charles
September 15, 2022

This happen to me a year ago, when credit Karma sent me a pre-approval email. When I applied for the card I was denied. I expect compensation .

FTC Staff
September 19, 2022

In reply to by Chrispon Charles

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.

C.A. Smith
September 15, 2022

This is unacceptable across the board. Being a victim to a company that’s suppose to help me out aka the victim. I STILL receive these pre approved emails and the outstanding ones too. It’s crazy how they really mislead us into believing we would get approved to later being DENIED and credit score FRIED. So disheartening to know these details. I use EXPERIAN as well but definitely removing myself from Credit Karma. I don’t trust this company at all. Compensation for all affected even though it won’t be enough for the damage that has been done to our credit. It going to take money to get it back on track. Like many as myself, we were under impression these preapproved items would benefit our credit overalll. However, we were manipulated into that idea and in return it not only shot our credit scores if hurt us individually. It’s hard to get a high credit score but it easy to lower it.

Lanell Costley
September 15, 2022

I was pre approved a couple times but filled out the application I was denied every time.

Eljeanay Diabo…
September 15, 2022

I was a victim

Gregory Black
September 15, 2022

I have been scammed by this many times and so has my wife! how do we get compensation or will they take the inquiries off of our credit?

Alan Watts
September 15, 2022

I was a victim of Credit Karma's credit card scheme.

Jason Toth
September 15, 2022

I was a victim of this as well.

Jessica battle
September 15, 2022

This happened to me I was thinking I was approved and really wasn't and it brought my credit score down

FTC Staff
September 16, 2022

In reply to by Jessica battle

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.

Ashley DeJesus
September 15, 2022

This has happened to me too… I always wondered why they say “pre-approved” then I apply & I’m denied. With Loans they offer as well! then they check my credit & it messes with my score!

Ashley DeJesus
September 15, 2022

They also give the wrong credit score always, which is weird!

Valencia Holmes
September 15, 2022

I too was a victim of Credit Karma saying I was approved and filed out the app and was denied it was very upsetting and affected my credit score it was very upsetting

Cory Carter
September 15, 2022

This has happened to me several times. How can I file a claim?

FTC Staff
September 16, 2022

In reply to by Cory Carter

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.

Lucas
September 15, 2022

I've been a victim of these. Not just through emails but in-app too. I was wondering why my credit bounces between points. I should've caught on earlier but I hope I can compensated for points lost due to denial

Mildred Walker
September 15, 2022

I have had several pre-approvals and was all Deniad

JONATHAN COLLAGUAZO
September 15, 2022

I was also a victim of this. Applied for a dozen credit cards. And never got approved. Even thought I had a good credit score, turns out I didnt.

Chelsiah Linares
September 15, 2022

I have definitely been affected by this. Applying for cards and loans just to be denied. This made it harder for me to get a car loan and now I have higher interest rates on my car loan. So upsetting and crazy to see how many people went through the same thing.

Julie Sheffield
September 15, 2022

I was one of these people! I was told I was preapproved and a hard inquiry hit my credit score. Somewhere between 2018-2022.

Gary Apodaca
September 15, 2022

This has happen to me also, applied for a loan. Instead I got a opportunity to get a credit card. I was sure I would be approved by the message I got. Turns out I was denied after a credit check and my score drop. Upsetting

Julie Sheffield
September 15, 2022

I sure hope I am compensated back for this as well. Credit Karma hurt my credit a few times because of false pre approval offers. I think they wanted us to keep thinking we were preapproved with all the credit card offers they gave us and then hit our credit, lower our score so we keep believing we could get out of the hole, and fix our credit by thinking they would help us rebuild it. Sad.

DEBRA MORLACHETTA
September 15, 2022

I have been a victim for several years. Often seeing Lee approval only to be denied for like Ana, credit cards and auto refinancing.

FTC Staff
September 16, 2022

In reply to by DEBRA MORLACHETTA

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.

Rocky Carter
September 15, 2022

Same thing happen to me

Matthew Mcnelis
September 15, 2022

I am also a victim. I appiled for multiple cards over those years and each time was denied. I would love to speak to someone. They are still doing these same practices to this day. Just with different verbiage. I received one as of sep 3 2022. Days ago.

Jennifer Glancy
September 15, 2022

I filed my taxes through Turbo Tax . I was only able to collect my taxes if I received it through Credit Karma . I agreed . and opened the Account. What appeared to be a smart application with all these great tools to help you build your credit and save money and get discounts on auto insurance and better rates on home and auto loans .. man all those pre approvals … only fooled me into believing that my credit was already approved and got my inbox slammed with loan companies emails advertising and relentless phone calls

Raven Dawson
September 15, 2022

I have been trying to fix my credit for years, and I’ve always used Credit Karma to track my progress. As my score would increase, I would periodically receive emails from Credit Karma that my score qualified me for preapproval various credit cards only to learn that I was approved, causing my score to drop even more. I’ve learned to disregard the pre approvals now. I guess it’s better late than never.

Pamela Johnson
September 15, 2022

I was also victimized over 30k in loans I didn’t get proper approval. And 1 request turned into 5, 2 of them from creditors using similar names this has completely ruined my credit