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.
Yes I had the same experience with preapproved auto loan and I took it to store saying I was approved and they reran and no not approved along with other offers
I have 2 credit cards and a debit card
Yes, I myself have been victimized by credit karmas pre approval offers and denied. How do I get compensation?
I have been tricked by Credit Karma as well! Not just with Credit Cards but Loans and Car Loans!
Same sentiment as the rest. It's unfortunate because some of us have not been able to recover from constant impression that you are approved for something when you actually are not but by that time your credit has been ran and the spiral begins.
Same sentiment as the rest. It's unfortunate because some of us have not been able to recover from constant impression that you are approved for something when you actually are not but by that time your credit has been ran and the spiral begins.
In reply to Same sentiment as the rest… by Gabriel Vargas
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.
Please add me. Or let us know where we can fill out the form. They also did this for loans and connected with lending tree. You would get a ton of phone calls and emails after that. A run through your credit and NO approval.
Yup I've been using it for years and got some approvals and some denials
I was also a victim of credit karma and also have applied for credit and was denied multiple times during that period and I applied because they said I was approved.
This has happened to me with credit karma numerous times. They will state I have great approval odds to only be denied once credit is pulled. This frustrates me as I'm trying to work on my credit score only to have my score decreased by bad approval odds.
I applied for a couple of credit cards and loans and was denied even though they said I was pre-approved how do I get in on the lawsuit
I am a victim multiple times !
I was offered multiple card offers and was turned down for almost all and my credit score took a major hit. I was also turned down for approximately 3 refi loans. How do I sign up for this lawsuit
Same thing happened to me Credit Karma claimed I was “pre-approved” for a credit card and it hurt my credit score as a hard inquiry. I will stop using credit karma after this settles. I should be compensated as well
Yes I was a victim. Who do I contact or submit a claim to for the settlement?
I was a victim of this also. I always wondered why I would receive pre-approvals, but was turned down after entering all of my information, including my bank account information.
How do we file a claim? They can't contact me at my old email address which is the one I used when I was applying. Credit Sesame and Experian do this same thing and should also be stopped!
I applied for a couple pre-approved loans that the sent through my email that linked me to there site where I was denied. I only applied because they kept sending pre approved emails even after my first attempt was denied.
This Happened To Me As We'll They Told Me To See If I Qualify For A Credit Card And Then Tell Me I Wasn't Approved Because Of My Credit But Still Will Send Me Emails And Alerts Saying Get Pre-approved Today
I also was a victim of Them also. They make it seem so easy. And after you apply they deny you. Not to mention drop my credit by 30points.
I have applied for a couple of pre-approved cards and when applied got turned down and it was a hard inquiry which affected my credit score
This has also happened to me several times. On their app and through emails. As a result, it lowered my credit score. I would like to take part in this lawsuit.
I also was a victim of their non business like tactics. I use them to monitor my credit and it was a Roller Coaster Ride. One day my credit is at one place then all of a sudden it drops only to rise and drop again months later. The pre-approval tactic is to benefit their own agenda. I am glad this will stop them.
How do I sign up to be a part of the lawsuit?
Same thing has happened to me and it cost my credit score badly for even applying I'm glad something is finally being done about this
I also received the "pre-approved" message for a credit card and of course I was denied and my credit score went down. I wonder how will we receive the compensation for their lies damage to our credit score
In reply to I also received the "pre… by Candy Sweet
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 know exactly that feeling...it's been done to me numerous times.
Thank you for the information, I'll use it wisely!
This has happened to me for Credit card offers and personal loan offers. I have stopped attempting to rebuild my credit from all of this. Very frustrating when working so hard during the pandemic. Any information on next steps would be greatly appreciated!
I was a victim to creditkarma
Pre-approved me and, when I applied I got denied.
I expect to be compensated from the results of this lawsuit.
Credit karma is very deceitful. Outstanding and excellent for me to get pre-approved for several credit cards. Denied denied and denied it had taken me 2 yrs to get my credit to at least fair thank FTC
Happened to me on a credit card approval
This happened to me on credit card and keep sending me the same stuff pre approve
I was so a victim of credit card approvals and also house loans
In reply to I was so a victim of credit… by Jasper
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’ve been using Credit Karma for a few years now and it’s awful . I’ve been trying to get my FIRST credit card forever and it’s been nearly impossible. Every time I’ve applied I got a hard hit PLUS denied the card. I have been really trying to just get one but with my score at 500 it’s hard. I might be not looking in the right places, but this app kills me with lowering my score just when I think I’m eligible
It happened to me saying I was approved for credit cards,personal loans and auto loans then we I applied I was denied. Which impacted my credit score. And these were hard inquiries
I am one of the victims of this problem, when I wanted to build a credit score, Credit Karma gave a suggestion to apply for several credit cards with pre-alprovals reasons. When I tried to apply for some of the credit cards that were offered, all of them were rejected, this caused my credit score to decrease and I had to build it from begining again and made it difficult for me when I wanted to apply for another based on my credit score
I was in the same boat, clearly was just bait to find if I could be qualified. I also get multiple letters in the mail per week now too, im guessing from giving my information applying.
They continue to give pre-approved status for loan and credit refinance and of course it's always denied!
My son was a victim also. How does he sign up for the lawsuit?
In reply to My son was a victim also… by Connie Chisholm
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 of this.
Thought I was the only one going thru this. My score dropped 72 points because of this. I hope anyone that has been a victim to this gets recompensated . Its takes a long time to build credit as it is.
I was also a Victim.
I receive pre approvals for credit lines and credit cards from Credit Karma and was denied several times. I still receive pre approved correspondence from different Credit Karma creditors like Uplift and Affirm.
I was a victim of the Credit Karma “Pre Approved” credit card and refinancing my car along with car insurance. They are preying on people who have sub par credit knowing that we will apply and then get denied after they have gotten all out information to make them rich. All the while we are hurting ourselves with “Hard Pulls” on our credit. What a joke they are. My account will be closed immediately.
I was too a victim of credit karma many times. I would like to know to claim my part of this settlement.
Me and my husband was victims to this too then credit Scores go down and couldn’t get anything cause you’re credit looks so bad.
I would love to get in on this bc I would get emails all the time looking for a credit card and it would tell me I was approved and when I check I was denied . I didn't think it would hurt my credit but it has