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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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Zuria Wallace
September 12, 2022

I have received emails from Credit karma as well stating I had a pre approved offer. Once applied I was denied.

Julia
September 12, 2022

I they have been doing this to be for years. Just two months ago they told me I was approved and I was denied. How do I sign up?

Maronica Hill
September 12, 2022

I have been with credit karma for years now and I applied for several cards and thought I had a good chance for approval and was denied. I also tried loans in which they said that I qualified for only to be turned down. And my credit fell because of it. I am trying to get my credit up so that I can have good credit. And had my hopes up on a loan in order to pay off my debt. How do I file for the settlement

Sedrick Rose
September 12, 2022

I was one of their victims and want to be compensated by Credit karma

FTC Staff
September 15, 2022

In reply to by Sedrick Rose

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.

Verna Cook
September 12, 2022

I have fell for Credit Karma's so called "Excellent approval odds" and "You are pre-qualified" one too many times. I sent them two emails in 2021 expressing my disappointment because I applied based off of their recommendations and was denied credit. I had become increasingly unsatisfied with Credit Karma and the pre-approved and pre-qualified notifications on my account, I rarely use their service anymore. After learning about this, they still list the approval odds on my account. I don't dare apply for another one of their "excellent odds" again. They are not in the business of helping consumers protect their credit scores. How can people get included in this settlement?

Leslie A Cooper
September 12, 2022

I'm been receiving emails for the last 2 to 3 years on being approved and about approval but never have got approved on one! They have been very deceitful!

Edgar Muniz
September 12, 2022

They really messed up. Here I am applying after they told me that I was pre-approved and to only hurt my credit more and now I am worse than what I was!

trudy letson
September 12, 2022

i was tricked in believing i would be approved and was not

LaToya Smith
September 12, 2022

I have been with them since 2020

Tyrone Jones
September 12, 2022

I was a victim of multiple pre approval through credit karma and was told it wouldn’t effect my credit score and in result to this my credit score dropped and shows and inquiries y on my report.

sherry Johnson
September 12, 2022

I had credit karma for ever since 2017 and I have used this pre approved credit card method and a lot of time I still did not qualify

Dennis Moberly Jr
September 12, 2022

I have been denied on multiple occasions on cards they claimed was pre approved.

Tina L Mock
September 12, 2022

I have used credit karma pre approved for credit cards and was denied and my credit was affected.

Heather Wright
September 12, 2022

This has happened to me numerous times to where I stopped applying for anything over the last year! It would make me so mad to get my hopes up and the boom denied every time! Credit Karma is terrible for this!

donna kleiber
September 12, 2022

I was a victim to these alot of times .applying for loans and pay off credit cards. And did not happen

Claudia Vinson
September 12, 2022

I received so many prep approved letter and credit karma saying apply for this and that you pre approved and all it cause was my credit scores go lower and top of that my email and information end up in the black web

FTC Staff
September 15, 2022

In reply to by Claudia Vinson

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.

Edward Glidden
September 12, 2022

I fell for refinance your auto you are preapproved at 5% along with some others. As soon as i did that i was denied and my credit dropped now i was stuck renting a house with dangerously high levels of radon with a family of 6 refused on rental applications due to low credit scores i have never missed or been late on a payment or rent and i pay over 15% interest

Tonya Howard
September 12, 2022

I was a victim of Credit Karma giving me preapprovals for credit cards and personal loans.. When I applied, I was denied. I stopped applying and now I disregard the preapprovals offers. My credit was checked and caused a decrease in my credit score. Due to all the inquiries, I expect to be compensated from the results of this lawsuit and I may stop using Credit Karma

Diana Saffore
September 12, 2022

How do a person join in the complaint against credit karma

Mark Crane
September 12, 2022

Credit Karma sends me emails all the time with these “pre approved” cards. I was denied an Apple Card because of these false promises!

Josh &Katrina Reed
September 12, 2022

Both of our credit scores have hard inquiries dues to being told we pre qualified . Once information was given and the hard check was preformed not only did we get denied but our scores went down .

Keyonna M Barfield
September 12, 2022

I have had tons of unauthorized inquiries from credit Karma that has resulted in a drop in my credit score

Perry Williams
September 12, 2022

I’ve been with credit karma for about 10 years

Kedar A Malik & wife
September 12, 2022

I was a victim of Credit Karma giving me regular preapprovals to refinance an auto loan, personal loans to pay down existing credit cards, I was denied and it impacted my credit score so, until I’m still trying to recover. I stopped applying and now I disregard the preapprovals offers. I expect to be compensated from the results of this lawsuit and I may stop using Credit Karma.

Nicole Vaughn
September 12, 2022

Iam 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
Reply

Perry Williams
September 12, 2022

This happened to me many times, I've been denied numerous times and they still send post. How do I submit a claim?

Brandy Jones
September 12, 2022

I’ve been pre-approved for everything across the board! Paper pre-approvals for vehicles from dealerships to credit cards, home loans…. You name it, they “Pre-approve” it. How come there are only approximately 1,500 people on this “list” of compensatory persons? I know I’ve not received any notification of “ooops that pre-approval didn’t go through? Let us compensate you for our error.” Bunch of bologna if you ask me. Just a back door for moving $3million dollars around to supposed scam “victims”. Government lies.

Katurah Miles
September 12, 2022

I was a victim of false approval as well.

Erica Trammel
September 12, 2022

I'm not sure if this happened to me or not. How do I find out?

Marylin M
September 12, 2022

This happened to me too during those times. How do we find out if we qualify? My phone numbers have changed and emails. I have looked everywhere but it seems there is no information on how to get it. Anybody out there know where to go?

Patricia
September 13, 2022

In reply to by Marylin M

I’m hoping that if you have the Credit Karma app, That they already have our information and can see what people were affected by this.

Thomas
September 12, 2022

It's been like that for some time. Pre approved then denied. Inaccurate score representations about 50 points lower than it was. I applied a few times and learned to just leave it alone after it plunged my score unfortunately.

Catina L Sherman
September 12, 2022

They have gotten me several times "Your pre approved for 1000" then I click abd sign up and it says unfortunately Im not approved but spams my email

Catina L Sherman
September 12, 2022

Credit Karma many times told me I was pre-approved for cards then when I applied I was denied and my score went down and I got flooded with spam in my email.. I want reembursed

FTC Staff
September 13, 2022

In reply to by Catina L Sherman

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.

Shelena Baker
September 12, 2022

This has happened to me also when I was kinda forced to use it for my taxes to witch I have yet to receive using turbo tax they had that available credit karma and so I got an account set up. I'm not even sure what it's all about but it has sent so many pre-approved and loan emails to me and so forth but nope not able and differently not approved but a hit to my credit score there was it's not very nice when you are trying to improve and things like this just knock you down a few more notches.

Richard Myers
September 12, 2022

This happened to me on at least 3 occasions. I was a caregiver to my 80 year old Mother and was desperate to start rebuilding my life/credit with a new credit card. I was turned down for the regular credit cards but was accepted for a "Secured" card. This made my credit even worse, glad I did finally give up, I suspect my score would have become lower.

FTC Staff
September 13, 2022

In reply to by Richard Myers

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.

Jenifer Clemmons
September 12, 2022

Thought the approval odds were accurate until I started seeing denied applications!

LaTonja G Green
September 12, 2022

They got me too

Tyehsha Gray
September 13, 2022

Hello my name is Tyehsha and before I used credit karma to help build my credit score I was at 650 I wanted to be at 700 this was in 2019 now after I paid off all my debt here they come claiming they removed some debt which I paid off so how they removed anything from my debt I’ve called to see what was the problem and after talking to a representative I told credit karma I was no longer interested in their services and after that tip this day my credit is been going down after can someone please help me thanks

Donna
September 13, 2022

I have been taken advantage of same and at times I was hit on my credit score too

Penny Johnson
September 13, 2022

I was pre-approved also for a credit card and got denied. Hard pull on credit score took place.

S.Mitchell
September 13, 2022

I am a consumer of credit karma and was persuaded to apply for personal loans I was pre approved for but; after applying for loans if denied me and check my credit. I use credit karma for information like that but only to monitor my check going forward.

Daniel M.
September 13, 2022

I was a victim of this like 2or 3 times after getting that pre approved notice.

Stacey M.
September 13, 2022

I was a victim of CK and they have never had anything right in my opinion. The age of my credit history is never correct. They have always had me under 2 yrs. I have had credit since 2001.

Patricia Rodriguez
September 13, 2022

I made the mistake of trusting Credit Karma. Saying that I am preapproved for certain credit cards. Apply for these credit cards and increase your credit score. I applied for the credit cards, two of them, and was denied. All that happened was my credit score went down! Very disappointing because it takes a while to build the credit score. From now on I’m not applying for any credit cards until my credit is high enough to get an approval.

Charles amos
September 13, 2022

I believe I'm a victim of this how do I go about making a claim