Business Blog
$3 million FTC settlement disapproves of Credit Karma’s deceptive “pre-approved” claims
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 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 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.
I thought i was the only one maybe they made mistake but now i know the truth. Im saddened and hurt especially because my credit was affected due to their dark practices.
How do I get involved just seen on news this just happened to me.
I have applied for plenty of loans and cards from them not knowing at first that it was affecting my credit score and also they don't give you your correct credit score
I too would like to see more information on how to make a claim for this settlement.
Was building credit and using Credit KARMA to monitor. Was advertised that i quilfied had an outstanding pre approvial for it loan .. it stayed THIS WILL NOT EFFECT YOUR CREDIT. 😒 after i applied i was denied and my credit score took a big hit.
I know this has happened to me several times. I want to know how to be involved
I also, have been a victim of this and emails about the pre-approval and denial letter. I sent it to them and they denied receiving the information.
So where can I get my portion. Did this twice…
Ive applied more than once and got denied. But on credit karma it said i was pre-approved. For a car and credit cards
This has definitely happened to me how do u file a claim
Credit karma also has inaccurate credit scores which are 20-30 points lower than what FICO shows on there web site!
I was also told i was approved and was denied
I was a victim to credit karma 's pre approval for credit cards then denied and my credit score went down.Several times
Yes I also would like details if anyone knows on how to put a claim in because my credit was hurt by falling for a preapproval when I applied for a credit card
I’m a victim of this credit karma preapproved scam how do I find out about information
I went through this so many times false approvals then credit drops.
In August, 2022, Credit Karma assured me that having a third credit card would improve my already good score and told me that I was already approved for numerous cards. I chose American Express and was rejected. Now my credit score has dropped. I wasn't aware that applying for another card would damage my score and it is totally unfair that I wasn't informed of the risk by Credit Karma beforehand.
In August, 2022, Credit Karma assured me that having a third credit card would improve my already good score and told me that I was already approved for numerous cards. I chose American Express and was rejected. Now my credit score has dropped. I wasn't aware that applying for another card would damage my score and it is totally unfair that I wasn't informed of the risk by Credit Karma beforehand.
How do we file a claim?
I was a victims numerous time and recently was pre approved for which definitely need so I pick my car and to find out I was given misleading information and my deposit amount is way more than I can afford and my payment would be just as much as my insurance and it’s not even the car I had chosen.
How do you receive payment?
How do we get more information to file with the FTC against this company? I am a victim
I used credit karma to get "pre approval" quotes and it dinged my credit, just hope that I get reimbursed.
How do I make a claim? This happen to me multiple times and it still happens. I’m sure to me and many others.
How do I go about being included in this?
I also was preapproved for credit card when I apply I was also denied and my credit score was impacted because of my denial.
How do we apply for the lawsuit? I applied from a Credit Karma pre-approved post and got denied.
Need to know how to make a claim, because it not right to do this to us
How do you go about joining the Credit Karma lawsuit because I was affected
Yea That Happen to me With A Lian Company That They Recommend
I have had issues with credit karma and Credit Sesame. They said I was pre approved and then the credit go lower and the slap in the face with disappointment and the No.... then got capital one mailing me a letter making it sound I could get a new car. Just contact this dealer they listed. Well that dealer shot gun my credit making it even lower. Worked and still working to get it back up. Been the world is running off credit. I like to have something done to these people.
I was a victim I revealed plenty of messages saying that I was preapproved and applied and was denied how do I get in on the lawsuit for false advertising
i dont believe $3m is enough to compensate for the stress, frustration, disappoinment, and on going targetting of the 10s of MILLIONS of consumers duped by CreditKarmas actions. It may be a typical industry marketing practice but that needs to change as a whole. Glad the FTC is holding CreditKarma responsible and making an example of them but there are other businesses doing the same thing that need to be included in this and the settlement amount needs to be substantially higher - I'm talking BILLIONS. Considering the number of years and consumers it has affected. Myself included. You give these businesses your trust and your private information in the hopes of guidance and help achieving your desired credit improvments only to have the door slammed in your face and they laugh all the way to the bank and their country clubs and private islands etc! ENOUGH IS ENOUGH! I WANT MY FAIR SHARE AND I WANT RESTITUTION FOR MY DIGNITY!
This has happened to me atleast twice on Credit Karma. Where ive applied for a card through them because they said i was pre approved and then got denied. Such a bullshit site !!! Ive since deleted it
I would also like to know I've been a long time customer of credit karma and always get emails and promotions or pre approvals and very good odds approvals for credit cards all the time. It doesn't seem to show anywhere how we are supposed to add to this claim. Nor did we receive any notifications about this claim.
My husband and myself were victims in this as well. Applying for cards and loans we were “pre approved for, just to be denied.
How do I make a claim? Because this has happened to me numerous times during this time period.
I was a victim also. Giving me the pre-approved on loans an credit card, only for me to apply an be denied
I was a victim of this deceptive act multiple times which caused my credit score to drop tremendously. Credit karma continues to send these emails to this day.
How do I get involved in the lawsuit because this has happened to me as well
I fell victim, I'm not proud of it but I fell three times. I am a slow learner. Is there going to be a way we can provide our information for compensation?
I have received pre approval statements and when I have applied was denied as well and it has affected my credit score the hard inquiries are hard to remove how do I go about being apart of the lawsuit
How about bait and switch? Their app displayed a non stop barrage of attractive rates for refinancing an auto loan, but when I applied and was told I was approved, it was for a much higher rate. I even have the screenshots for the advertised lower rates.
Both my husband and I have been tricked by good chance approval with this company. How do we file
I was a victim of that for credit and auto refinancing as well.
Would love to be compensated for this when/where do I sign up.
They definitely got me with that
I was also a victim of this, probably more then once. How do I file a claim?
Will the ones that were affected be compensated as well? Or just the major company that sued them? In all fairness we the victims should get rewarded. And yes I am one of those victims of the promised pre-approval that never happens. I received and applied to that credit karma offer more than once.
Credit Karma has done this to me multiple times. Said I was pre-approved for refinancing my car loan only to be denied. How to I submit a claim for this lawsuit?