Credit Karma said users were ‘pre-approved’ for credit cards, feds say. They weren’t

Credit Karma is accused of duping its users with “pre-approved” credit card offers they didn’t actually qualify for, according to a complaint filed by the Federal Trade Commission.

Now, the credit services company is being ordered to pay up.

The FTC accused Credit Karma of “deploying dark patterns” to mislead consumers into believing they were pre-approved and had “90% odds” to coax them into applying for credit cards, according to a news release. Nearly a third of users who applied to the “pre-approved” offers were ultimately denied.

“Credit Karma’s false claims of ‘pre-approval’ cost consumers time and subjected them to unnecessary credit checks,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a statement. “The FTC will continue its crackdown on digital dark patterns that harm consumers and pollute online commerce.”

FTC officials ordered the company to pay $3 million and to stop deceiving consumers.

What are dark patterns?

Credit Karma reportedly used dark patterns — defined by officials as designing websites and apps to have the effect “of obscuring, subverting, or impairing consumer autonomy, decision-making, or choice” — to deceive users about their likelihood of approval, according to the FTC.

In its complaint, the commission also alleges Credit Karma used A/B testing, or a practice of comparing two versions of a claim to see which performs better, to directly influence users’ behavior. The A/B tests showed users were more likely to click on credit card offers with the “pre-approval” claim compared with those showing they had “excellent” odds of being approved, the FTC said.

Credit Karma used this tactic from February 2018 to April 2021, enticing some consumers to apply for cards and incur a hard inquiry into their credit only to be denied, potentially damaging their credit scores unnecessarily, according to the commission.

Officials didn’t say how many users were impacted, but the complaint said “almost a third of consumers who received and applied for ‘pre-approved’ offers were subsequently denied.”

Fewer than “1,500 people have ever contacted us” about issues related to the complaint, a Credit Karma spokesperson told McClatchy News.

Credit Karma responds

The Delaware-based company, which offers financial and credit monitoring tools, reached a settlement with the FTC but pushed back against the commission’s claims.

“We fundamentally disagree with the FTC’s allegations about marketing terms that aren’t even in use anymore, but ultimately we reached this agreement to avoid disruption to our mission and maintain our focus on helping our members find the financial products that are right for them,” Susannah Wright, Chief Legal Officer at Credit Karma, said in a statement.

“Our industry-leading technology provides the transparency our members need to shop for financial products with more confidence,” Wright said.

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