Credit Karma Faces FTC Actions for Deceptive ‘Pre-Approved’ Credit Offers
July 1, 2024
In a recent development, the Federal Trade Commission (FTC) announced that Credit Karma must pay $3 million in penalties and halt its deceptive practices regarding “pre-approved” credit offers. This decision follows a lengthy investigation into Credit Karma’s misleading marketing strategies that affected nearly half a million consumers.
From February 2018 to April 2021, Credit Karma used the term “pre-approved” to suggest that certain users were guaranteed approval for credit card offers. However, many of these individuals were later denied, leading to unnecessary credit checks and potential damage to their credit scores. The FTC’s complaint highlighted that these misleading claims enticed consumers to apply for credit cards under false pretenses.
The FTC’s action is part of a broader initiative to crack down on digital “dark patterns.” These are user interface designs intended to trick consumers into taking actions that benefit companies at the expense of the user. In Credit Karma’s case, A/B testing showed that the term “pre-approved” was more effective in getting users to apply for credit offers compared to terms like “excellent” odds (Federal Trade Commission) (Federal Trade Commission).
The FTC is currently notifying 497,425 consumers who may be eligible for compensation. The majority of these consumers will receive email notifications, while about 4,000 without email addresses will be contacted by other means (Federal Trade Commission).
Credit Karma, a popular personal finance company, provides tools for consumers to monitor their credit scores and credit reports. The company collects extensive personal information from its users, which it uses to target ads and recommend financial products such as credit cards (Federal Trade Commission).
FTC Chair Lina M. Khan emphasized the importance of this action, stating, “Credit Karma’s false claims of ‘pre-approval’ cost consumers time and subjected them to unnecessary credit checks.” The FTC’s efforts are aimed at protecting consumers from deceptive practices that can lead to financial harm (Federal Trade Commission).
This ruling against Credit Karma underscores the FTC’s commitment to combating deceptive marketing practices in the digital space. The commission continues to address various forms of consumer harm caused by misleading online advertising and marketing strategies (Federal Trade Commission) (Federal Trade Commission).
For more information on how to file a claim if you were affected by Credit Karma’s deceptive practices, visit the FTC’s official website.
