Credit Karma to Pay $3 Million for Advertising False Pre-Approved Offers
The Federal Trade Commission has taken action against credit services company Credit Karma for misleading some consumers and telling them they were “pre-approved” for credit card offers. The FTC alleges that the company used claims that consumers were “pre-approved” and had “90% odds” to entice them to apply for offers that, in many instances, they ultimately did not qualify for.
The FTC order requires the company to pay $3 million that will be sent to consumers who wasted time applying for these credit cards and to stop making these types of deceptive claims in the future.
Credit Karma provides tools that allow consumers to monitor their credit scores and credit reports. To use Credit Karma’s services, consumers must provide the company with personal information, allowing Credit Karma to amass over 2,500 data points on each consumer, including credit and income information. Credit Karma then uses this information to send targeted advertisements and recommendations for credit cards and other financial products.
The FTC says that Credit Karma was aware that its consumers were misled: for example, its own customer service training materials cited “I was declined for a pre-approved credit card offer …. How is that possible?!?!?!” as a common issue representatives would encounter. Almost a third of consumers who applied for these false “pre-approved” offers were in fact denied.
The complaint alleges that, in response to Credit Karma’s false claims, numerous consumers wasted significant time applying for credit card offers. Additionally, when consumers applied for these offers, third party financial companies made a “hard inquiry” on their credit reports, which in many instances lowered consumers’ credit scores and harmed their ability to secure other financial products in the future.
Enforcement Action
The FTC’s proposed order against Credit Karma requires the company to:
- Stop deceiving consumers: The FTC’s order prohibits Credit Karma from deceiving consumers about whether they are approved or pre-approved for a credit offer, as well as about the odds or likelihood that a consumer will be approved for a credit offer.
- Pay $3 million in consumer redress: The order requires Credit Karma to pay $3 million to the FTC, which will be sent to consumers who were harmed by the company’s actions.
- Preserve records: To help prevent further use of deceptive dark patterns, the order requires Credit Karma to preserve records of any market, behavioral, or psychological research, or user, customer, or usability testing, including any A/B or multivariate testing, copy testing, surveys, focus groups, interviews, clickstream analysis, eye or mouse tracking studies, heat maps, or session replays or recordings.
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