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.”
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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.
I too was a victim of this. How do we go about being added to the suit?
So how do I sign up I was a victim
Yeah they got me too! How do we file a claim if we were victims of Credit Karma!
In reply to Yeah they got me too! How do… by Christopher Jennings
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.
Yes I was decided. And it made my credit score drop. From 675 to 499. . And then I was denied. They r lier's and need to be dealt with. . Welcome to the Ponzi scam. .
Yes I was a victim my credit score was 675 and now it's 499 because of them and then I was denied when they said I could get a credit card when I have other credit cards never had a problem and then a bunch of hassle and to me it was a Ponzi scheme on a credit karma's behalf
I am a victim.
The Same thing happened to me they would send me emails saying i was pre approved and then rejected me after i applied And all ways emailing me about new approved cards and auto loans. I had so many hard inquiries.
I was also mislead with the credit card approvals I applied atleast 3 separate times when it said I was pre approved and I got denied each time. It was a waste of time and lowered my score. I have a family of 5 and it was just uncalled for and i also may stop using CreditKarma.
I was also mislead with the credit card approvals I applied atleast 3 separate times when it said I was pre approved and I got denied each time. It was a waste of time and lowered my score. I have a family of 5 and it was just uncalled for and i also may stop using CreditKarma.
This always happened to me credit has been affected severely
I am a victim of Credit Karmas "pre-approval" I have been denied by many of their offers and my credit score was effected.
Hook line and sinker.
I did the same thing multiple times though not within the last year because it only hurt my credit score and never led to a credit card or loan
In reply to Hook line and sinker. I did… by Jodi Alvarez
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 also signed up for pre approved offers.Was denied and my credit was checked. They are deceiving people.
They always send me these type of emails and I would applied for the card and have to pay something to get the card.
How can I sign up
Happened to me multiple times. I assumed there was an error in my initial submission of my application but I was denied 3 different times by credit karma for cards I was told I’d be able to get. I didn’t receive any of the cards.
Unfortunate victim
They told me I was pre-approved for a credit card when I applied for it I was denied the next thing I know my credit score went down now it's in high inquiry
I have also been denied using credit karma. I have been working on my credit for years to get better to purchase a home for my family but that has been put to a stop due to my score lowering from getting high hopes on these pre approvals on credit karma .
This happened to me with them, multiple times.
I am a HUGE victim of this on countless occasions and still receive letters in the mail and emails saying I’m pre approved and once I try to go through with the pre approval I’m denied and my credit score has been effected DRAMATICALLY due to this and I will like to be compensated due to this .
I was a victim of Credit Karma giving me pre-approvals..
I am a victim of credit karma they offer me a credit card to improve my credit score now my credit score is worse then before.
I am a credit Karma customer and I have applied for multiple credit card as well as loan offers that credit karma said I was pre approved for only to be denied after I applied. I was always denied and didn't understand why my credit score was going down instead of up. Now I know.
In 2019,21 & this year, after the inquiries and no approval then building back just to be hit again in a time of need I counted on the pre approval status info to be fully accurate. Yet I've been hit time and time again keeping me from obtaining financial stability.
Credit Karma was always saying I was pre approved for loans or credit cards I think I almost tried to get a loan but I backed out
I did this several times in an effort to obtain a card to gain credit because I was using recommended steps by credit karma to try to fix my credit score. Just really messed it up in the end with the hard inquiries on my credit report
How do I know if I will receive money from credit karma lawsuit?
I was also a victim! I am still using Credit Karma; however after seeing this I may stop using!
I Was Pre- Approved For More Than 3 Cards Within Last 2 Years . Each One I Was Denied & It Hurt My Score More Than Student Loans .
I was a victim of Credit Karma giving me preapprovals to refinance an auto loan on my credit report and 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. I expect to be compensated from the results of this lawsuit and I may stop using Credit Karma.
omg... i thought something was odd .. e-mails and pre approval for cards that i eventually was denied and took a hard inquiry on my credit!
very dissapointing
I have alllied several times for a credit card or loan and have been denied all times. Never approved once
I had so many denied that it recked my decent score and tanked it for a long time after
I am also a victim of this. As a single father its been heavily detrimental to mine and my childs lives.
I expect compensation for this. I am a victim of falling prey to this more than a few times. I kept having hope but no it was just a scam and damaged my score.
I applied to several credit cards before and credit karma always gave me false information. My credit score went down several times. Of course I need to be compensated. It is only fair.
In reply to I applied to several credit… by George R Hill
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 was also a victim a credit karma. Please contact me with the details of claiming compensation
I was also a victim of this. It worded to be very misleading.
This happened to me also. Multiple times . Said I was pre approved then denied me. It also happened for a house loan as well. It all was fraud
I am a victim of Credit karma. They gave me pre-approvals for secure and unsecured credit cards. I was denied for them and it weakened my credit score I am trying to rebuild. I stopped paying attention to them.
I was a victim.
Yes being a consumer of Credit Karma has brought down my credit score drastically from the pre-approval of credit cards to the pre-approval of a loan through one main financial then getting denied at the end. Its already hard enough just working on your credit for it to be dropped even lower when all in all I was offered a consolidated debt loan for the amount of two of my credit debts.
I have had this issue with credit karma many times . To point I had to delete account and app they no good at all .
It happened to me to
I was deceived by this same same tactic as many others to apply for a card that I was told that I had very high odds in being approved for...in fact they just told me the same thing today on the website!!! I've been using them for a few years myself and have took several hits on my credit after being denied for credit cards and loans that they stated I had good odds of getting. Plus I had to pay credit companies to repair my credit(another excess waste of money, time because of the points that were lost from hard pulls, for trying to get credit cards or loans that they said I was pre-approved for.
I also have a Credit Karma app and was deceived into thinking I was getting one great rate and found out they used all my information after I asked them not share my information. My score plummeted several points and then was harassed with emails and phone calls!