On Monday, the Federal Trade Commission (FTC) announced a settlement with credit services company Credit Karma over allegations that it falsely told consumers that they had been pre-approved for credit cards, when they had not, causing consumers to waste time applying for credit products, incur a hard inquiry on their credit reports, and, if denied, unnecessarily damage their credit scores.
The multinational personal finance company based in San Francisco, Calif. provides tools that allow consumers to monitor their credit scores and credit reports in exchange for a smattering of personal information, which Credit Karma amasses into over 2,500 data points. Credit Karma then uses the information to make targeted advertisements and recommendations for financial products, like credit cards, the FTC said.
The enforcement action dates to September 2022, when the agency accused Credit Karma of employing “dark patterns,” a range of manipulative user interface designs used on websites and mobile apps. Between February 2018 to April 2021, Credit Karma misrepresented to consumers that they were “pre-approved” for credit card offers when they were either pre-approved or, problematically, had only 90% odds of approval, the FTC alleged.
The company purportedly knew that these representations were inaccurate based on the results of A/B testing it conducted showing that consumers were more likely to click on offers saying “preapproved” than those stating that they had “excellent” odds of being approved. At bottom, the FTC fingered Credit Karma for intentionally tricking consumers into taking actions in the company’s interest and their detriment.
Under the terms of the consent order, Credit Karma agreed to stop making these types of deceptive claims and will pay $3 million in reparations, money that will be sent to consumers who wasted time applying for these credit cards.
Following a public comment period, the Commission voted to approve the final order 4-0.