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 was a victim of this .
was a victim
I just had an outstanding pre-approved chance of getting a loan on credit karma. I applied for this loan because I desperately need the money to get me on My feet again. I was denied by the loan company. All the hope I had when I saw the outstanding pre-approval was just destroyed.
This exact thing happened to me for a Capital One card I did a application for in November of last year. I was then denied. Dropped my credit score by 30 points and now it shows I applied for it but now it won't let me click on it to see why I was denied.
I was affected by credit karma this year. I was told my approval odds for a loan was excellent but I later received an email from the company in which I applied, via credit karma and I was denied.
In reply to I was affected by credit… by Tyesha Roberts
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 effectived by this I'm pretty sure how can we apply for refund if there is any or will they be able to tell who was involved? Sorry just trying to get info cause they did that to me a couple times .. thanks
In reply to I was effectived by this I'm… by Christopher Downey
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.
Same thing is still happening and I hate I signed up with them. False advertising and giving people hopes up amwhile messing up our credit
This has happened to me and it hurts my credit score when credit karma shows me that I have outstanding for blue American Express soon I applied for I turned down denied and that hurt my credit score that happened in April 28th 2022
I applied several times because they kept saying I was approved or pre approved and I have seen nothing but endless card offers and lowered credit score
I was offered pre approved offers they said won't effect my score but it did. I hope I am compensated I am victim of identity theft every day I get some pre-approved offer for credit cards and loans
In reply to I was offered pre approved… by James warren
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.
What about 2022???? I was tricked a few months ago and my credit nose dived. Why only until 2021???? They were still doing it this year!
I have applied for preaprroval cards and loans and was denied. I was told it would be a soft pull or no credit check but my credit was always checked and I received several hard inquiries on my credit report as well as a decrease in my credit score.
I've utilized Credit Karma for quite awhile because I appreciated its services. However, I've gotten pre-approval offers that I looked into with the hopes of establishing my credit. That was my purpose initially choosing Credit Karna to aod me with my goal.
Now, not only was I denied the pre-approved offer, inquiring about it brought my credi score down when these offers state that your credit won't be impacted by inquiring.
I'm very unhappy of the way ALL things work. This money system is not designed to help those trying to establish credit and those trying to re-establish their credit.
My credit reports are their and that's all the proof that's needed to see how I was done.
Thank you all for looking into schiesty doings by predators that act as if the doing is to help when actually the intent is to hurt.
It's not right. It's not okay.
How do you sign up for the lawsuit have been pre-approved plenty of times and denied
I am a victim as well. Do anyone know where you file the claim?
I was victim to pre-approval auto refinance and credit cars. Unneccesary inquiries.
I was a victim of this as well. Said I was Pre-approved and that it wouldn’t hurt my credit score but it did affect my credit score it dropped it down. Smh
I didn't know this was going on until yesterday when I saw that I was pre-approved, applied & I was denied. It will affect my credit score which I am trying to raise after the death of my husband of 43 years in a car accident. I'm 71 years old! You would think I would have know better.
Add me, please.
I never would have even applied for those credit cards if it weren’t for the pre-approved emails and notifications in my account that I was shown. Got denied 3 times for different cards and lost a total of -41 + -38 points off my credit score!
In reply to Add me, please. I never… by Shirin Asadi
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.
Unfortunately I applied several times for several cards my credit score could be hit. Compensation is required by me please contact me at the information provided by credit karma. Thank you
I was also a victim of this .It said I had a good approval rate but was denied ..very misleading.
I have probably applied repeatedly to “pre-approved” or “excellent approval odds” loans 10 times thinking maybe something from the prior bank just didn’t like one thing from my credit and the next would approve me given that I had great approval odds. I was under the impression that they had reviewed my credit and or history and is how they had decided I was pre-approved. I have never been approved for any of those loan “offers” and not only was applying a complete waste of time but, was disappointing and added to my financial stress.
This also happened to me.
I was a member of credit karma and also was fooled into this numerous times only to be denied and have my credit score drop
I was a victom , I was sent several pre approved off from credit karma as well as guaranteed approvals and after wards I was denied each time I applied ,, I think that's wrong on their behalf what do I need to do to be apart of this claim ,,,,
I’d received pre approvals for various credit cards and in turn received hard inquiries on my credit report.
I was also a victim of this.
This happened to me. I applied for a loan and didn't get it
From capital one to secured visa cards I've been quote on quote "pretty approved" yet apply then be denied. The fact I've applied to over 10 different places"pre approved" cards and got none has tarnished my credit instead if help it. Lying to innocent people for monetary gains is selfish and very insensitive. We as Americans are already having it hard, most loving pay check to paycheck, yet when we try to better ourselves we get lied to and credit score dropped. Shame on you credit karma
I applied as well and got denied credit went down
I am also a victim of being offered credit cards and not being approved for them. In fact, I have a recent email that I was sent yesterday that’s offering me a preapproved credit card that I wil not qualify for I’ve had about 5-6 offers.they need to be stopped.
I have definitely been a part of this issue with credit karma how do we get names on class action lawsuit?
In reply to I have definitely been a… by Erika hart
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.
Yesss i was so call preapprove good odds to apply and denied each time
I have a lot of hard inquiries because of the pre approvals from credit karma in which lead to a bigger process that ended up being denied and now have to deal with for a few years now and so fourth in regards to trying to get different loans that fall back onto those denials making it harder for me to get any kind of loan beside payday loans that are terrible
Please talk to Wells fargo about this unless their practices have been amended they did this to me several times to the best of my recollection in the past years.
I was also a victim!!!
I too am a victim of credit karma and their pre approval n lower car insurance with companies I haven’t heard of.
I also applied for pre approved credits cards on the credit karma app after being told I qualified and was denied
The same happened to my husband and I. Sadly. I wonder how they will compensate each customer.
In reply to The same happened to my… by Amy G W
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.
That happened to me many times with them. always with Discover and Chase bank and then Chase we'll make you sign up for the credit card check
it's funny but just noticed they closed that account they did that to because my old email that was yahoo that i couldn't use, so used my new Gmail account. So closed the Gmail account that was the one that was pre approved many of times on. saying I couldn't have 2 account and used my old yahoo that hasn't been used for 5 years now. wow that really shady of them.
I applied for several credit cards from Credit Karma because they said the odds of approval were in my favor. I have a bankruptcy on my credit report from 2018 and I was denied for multiple credit cards that I applied for. It negatively affected my credit, and I expect to be compensated from Credit Karma.
This didn’t just stop in 2018. I was a victim this year. Messed my credit up because I thought I was pre-approved al for a loan. Nothing but heartache and dispare.
Yes this happened to me also saying I'm per approved for credit card that was funding about 10,000 so when I apply I got denied and it was a few more American express card an more my credit was at 650s something an now it's at 4 hundred and something my credit score is