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 have had multiple misleading with credit karma over the years. How do you contact the ftc to let them know I have been harmed too
I was a victim of Credit Karma saying I was pre approved yet was denied. I am still in the process of building my low credit. When they said I was pre approved I applied in hopes a new card would help build my credit. It only decreased my credit score and denied my application.
This happened to me I applied for a cards that I was pre approved for and was denied as well.
I use Credit Karma to this day and yes the send me pre approved credit cards all the time. Yes I check them out only to have my credit score go down. So now how do we get it on the lawsuit?
I have been with them for about 2 years
I too was falsely led to believe I was pre approved when in fact i was not and would very much like to know how I can make a claim as well.
I have been a victim of this practice as well during that time period and currently and have proof of the current. How do I apply for compensation?
I was a victim of Credit Karma. I tried to apply for a Discover and was denied, but Credit Karma said I was pre approved. What do I do? Am I initialed for a reimbursement??
In reply to I was a victim of Credit… by Iyauna Dearing
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.
I saw it and checked it out got many denials and then was sent letter after letter saying why I wasnt approved.
I got told this several times by credit karma, And was even told that I had excellent approval odds alot and never even got accepted upon applying for the credit card it said I had "excellent odds" of recieving, ridiculous.
How do I get in this lawsuit to becompensated? That hard inquiry doesn't just leave you know.
I expect to be Compensated in this Lawsuit! I Applied for a Discover card because Credit Karma posted on my account that i was preapproved that card. I was denied! Knocked my credit score down. I began hesitant to apply for any other card . During this time frame to avoid another Hard inquiry on my Credit!. After some time went by Credit Karma posted to my account i would get approved for a auto loan. So i went to a dealership . I got Denied !!! After they hit my credit several times. Leaving Me no chance in advancing any further. 2yrs!!!.
How do you get involved int this lawsuit I was a victim of credit karma pre approvals and didn’t ger approved I have so many points on the credit bc of this plus denials for the cards I’m pissed how do you get involved in this settlement
I'm in the same boat as everyone else what they would make a offer then when you apply my credit score would drop how do I get Included in this lawsuit
Will the people affected by their manipulative practices be notified when the lawsuit is settled? And will we be receiving some sort of compensation for this?
Suit against credit karma if you applied for a card or a loan because credit karma said you preappoved how do get in on the law suit to make a claim, I was missed lead and wasted my time thinking I was pre approved.
Credit score dropped tremendously because of the falsified pre-approved offering thru Credit Karma🤬
I've fallen victim to credit karmas deception when trying to get a credit card every card they had listed I was pre approved for.
I was a victim for a pre-approved loan many times on Credit Karma would be nice to get paid for what they've done wrong.
Where do we claim this at as I was deceived as well.
I was a victim of this scam multiple times being denied over a period of a year resulting in my credit dripping and cause financial hardship and a hard time to find an apartment
Hope I hear back from this
I was one who fell for this and was denied a credit card and a hard inquiry went towards my credit and it is not right for someone to do that knowingly they were wrong for doing so.. I need to be compensated for this disrupt to my credit score highly....I'm about to drop them cause of this .
I have applied for credit cards through credit karma and been denied of credit due to there false information
I was a victim of credit Karma pre-Approval credit card scam.
Causing a hard pull which I was denied.
This is 2022 and they are still doing it. I wish I knew about this report before I just applied for a Credit Card and they to me my odds were Excellent and I was denied and now have a hard hit on my Credit Score. They obviously haven't learned something needs to be done this is so wrong to do to people they are Heartless 😡
"ADD ME"
This has happened multiple times during my time with Credit Karma. Emails and while on their site. Glad someone is finally looking into this!!
How do we file a claim on this? I have been hot several times with their pre-approval scheme's. Via email and while on their site.
In reply to How do we file a claim on… by Jodi C
Isn't it crazy how the FTC gets paid but we Do NOT?
In reply to How do we file a claim on… by Jodi C
Go to the FTC website directly
Every time I log in to credit karma there are always pre approval credit card offers. Used to apply but stopped they never were true. Saw my credit scores going down.
How do you sign up for the “lawsuit?”
In reply to Every time I log in to… by Julie Norton
I'm trying to figure out the same thing
Add me I know I tried to get what they offered was turned down
Add me
I was lured in by credit karma too. I'm trying to raise my credit not lower it. I fell for it a couple times.
In reply to I was lured in by credit… by Tonya Finley
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.
I started using Credit Karma to monitor my scores several years ago, and I always found it odd how far off the scores posted there were from what the credit reporting agencies showed when I applied for credit. I started wondering several months ago after being denied after a “pre-Approved” message was shown how the heck they haven’t been sued yet, well I just saw this info from the FTC this morning and I’m not surprised whatsoever. It’s incredibly misleading and I have no doubt many people like myself looked at their scores with confidence and applied for loans/credit cards/rentals and were likely denied with a very different real credit score. Shame on you Credit Karma.
I'm looking to file suit because I have 8 capital one hard inquiries right now all from credit karma. As well as others. This has slowed down my home buying process 2 months
In reply to I'm looking to file suit… by Jaylencia M Macon
Same. I dont think I'll ever get a home loan approval now
I’ve got a few of those I just deleted them I don’t need it
I was a victim I was supposed pre approved for a credit card and was denied
How do I file a claim this happened to me too.
I to was a victim of miss lead pre-approval. So how do we get a hold of the active attorney?
How do we get compensated? I was a victim of this too by them and then my credit score went down.
I have been a victim for several years with Credit Karma pre-approval credit cards. I thought it seemed strange. I was told I was approved but turned out I wasn't.
How do I make a claim this happened to me
Credit Karma is constantly sending me notifications of updated pre-approval’s as of recently it been notifications of updated pre-appoval odds…very deceptive.
I was victim also, I applied for a loan and they wanted car for collateral and credit was pre approved and applied and got denied...smh
I was effected by this scam.
You got Equifax now credit karma they are still operating so what gives?