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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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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.

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Adrianne Foster
October 27, 2022

Credit Karma did the same thing to me as well.
Alerting me with Pre-approvals, only to get denied and Ed md up with a huge drop in points off my credit score.

Becky thomas
November 03, 2022

Victim of pre approval scam

Gelin
November 03, 2022

Credit karma Guarantee is Garbage, the credit cards that are being Guaranteed are only the ones with fees, so one will have to pay a fee to get the credit card, so basically your paying to get credit with high annual and APR FEES, it's why credit karma has that Guarantee of $50. That's not right to be doing this ,especially with this inflation we are going through

Otha Miller
November 03, 2022

They got me said I was going to get pre approved all I got is turned down and people calling me all the time trying to sell me all kind os thing I didn't know these people I got my phone hacked people asking for my bank info

Shari V Whitfield
November 03, 2022

Please add me

Cory Noel Pollard
November 07, 2022

Yes I’ve tried to get cards through the pre approvals process withinin the last three to four years and it’s unfortunate that this was happening

Tashie Spaulding
November 07, 2022

I was a victim of credit karma pre-approval scams. I've applied to several pre-approval credit cards, such as Capital One, Sky, Credit One, and more. I only end up not qualifying when I directly applied for them.

Tamra
November 07, 2022

They are STILL DOING THIS!!!! My score went down 2 points and card company has my info... anything I can do about it now???

Cindy Wagner
November 10, 2022

I have used that site many times and have many times and been disappointed! Wish I could have been part of settlement

Fabiana
November 21, 2022

How do we sign up so we can get our money from credit karma, being that I have moved and have a different checking account. Is there a way to check if I am eligible and will receive money?

Latisha Forward
November 21, 2022

I have been a victim of credit karma I have filled out for so many of the pre approved credit card application only to get denied. Then my credit score to be lowered more than what it already is

Barbara J nieves
November 21, 2022

This has hurr my credit

Lady Victoria …
November 21, 2022

I been with them since 2012 and have a lot of hard inquiries on my report because I told I was pre approved for card are a loan and wasn’t

Jocelyn
November 21, 2022

I was a victim several times

Angeline S Deck
November 21, 2022

They got me on this a couple of times for cards and loans only to not qualify, being turned down and to have new inquiries on my credit report that ended up bring my score down even lower

FTC Staff
November 22, 2022

In reply to by Angeline S Deck

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.

Jeannine
November 21, 2022

I have used Credit Karma because it was supposed to be an accurate and free online credit moniting website; where they assist in disputing mistakes on major credit reports. Credit Karma also advertised high percentage chances to be approved with my credit score to apply for credit as well as advertising pre approval just for me to be denied and taking a hard hit that brought my c credit score down. Please post information on a more reputable
Website for us consumers.

Valente Leanos
November 21, 2022

So how does one get in on this lawsuit if In fact we were lied to and it in fact damaged our credit score? Is this a Class action where anyone with proof can be a part of? If yes where do we go to file a claim?

Deborah Curley
November 22, 2022

They told me I was pre-approved for car loan several times I applied and my credit score is so low right now I can't even get an apartment and if they didn't tell me that my score would still be approximately 690 now my credit score is 528 and 547 I'd like to know how I apply for compensation because of what they did I everything in my life is just screwed up cuz of my credit

Edgar Villatoro
November 22, 2022

I was offered pre approval, when I wasn’t Pre approved

Gloria
November 22, 2022

I also was a victim of this and it causes my credit score to drop numerous times due to them saying I was per approved and then getting denied

Jermaine Brown
November 22, 2022

I was a victim of Credit Karma giving me pre-approvals for credit cards and refinance an auto loan on my credit report and I got denied back in 2018. I pretty much took care of the situation and never trusted them again.

Darrell Mouton
November 22, 2022

I was pre approved for credit cards and a auto loan went through the application process and I too was also denied. My credit score dropped I now longer open this app. I surely need to be compasatied with this lawsuit..

Clarrissa
November 22, 2022

I agree complete waste of time falsely advertised did over 3 applications for cards that I was said to have great approval odds and 2 pre approved cards but got denied for all of them was so mad.