Federal Trade Commission (FTC) takes action to prevent Credit Karma from deceiving consumers with false “pre-approved” credit offers

The Federal Trade Commission has taken action against credit services company Credit Karma for publishing dark patterns to misrepresent that consumers have been “pre-approved” for credit card offers. The FTC alleges that the company used claims that consumers were “pre-approved” and had “90% odds” to be tempted to apply for offers for which they were not eligible in many cases. Agency order It requires the company to pay $3 million to be sent to consumers who have wasted time applying for these credit cards and to stop making these kinds of deceptive claims.

“Credit Karma’s false claims about ‘prior approval’ cost consumers time and subject them to unnecessary credit checks,” said Samuel Levine, director of the Federal Trade Commission’s Office of Consumer Protection. “The Federal Trade Commission will continue its crackdown on dark digital patterns that harm consumers and pollute online commerce.”

Credit Karma provides tools that allow consumers to monitor their credit score and credit reports. To use Credit Karma’s services, consumers must provide the company with a variety of personal information, which allows Credit Karma to collect more than 2,500 data points for each consumer, including credit and income information. Credit Karma uses this information to send targeted advertisements and recommendations for financial products, such as credit cards.

According to the FTC complaint, Credit Karma violated Section 5 of the Federal Trade Commission law by falsely stating that consumers have either been previously approved for credit offers or have a 90% odds of approval. The complaint alleges that Credit Karma’s behavior harmed consumers by:

  • Deceive them about whether they have been approved: Despite claims by Credit Karma that consumers had “pre-approval” for many offers, nearly a third of consumers who applied were rejected. Credit Karma has often revealed potential denials in buried disclaimers or false claims that consumers have “90% odds” of agreeing. Credit Karma was aware that its consumers had been misled: for example, its customer service training materials were cited “I was declined on a pre-approved credit card offer…. How is that possible?!?!?!” As a common issue that actors may face.
  • It costs consumers time and damages their credit scoreThe complaint claims that in response to Credit Karma’s false allegations, many consumers have wasted significant time applying for credit card offers. Additionally, when consumers applied for these offers, third-party financial firms made a “hard inquiry” about their credit reports, in many cases lowering consumers’ credit scores and harming their ability to secure other financial products in the future.

enforcement actions

Under the FTC Act, the FTC has the power to take action against companies for engaging in unfair and deceptive acts or practices. The FTC’s proposed order against Credit Karma requires the company to:

  • Stop deceiving consumers: The FTC order prohibits Credit Karma from deceiving consumers about whether they have been approved or previously approved for a credit offer, as well as about the odds or likelihood of a consumer agreeing to a credit offer.
  • Pay $3 million in consumer compensation: It requires Credit Karma to pay $3 million to the FTC, which will be sent to consumers affected by the company’s actions.
  • Record keeping: To help prevent further use of deceptive dark patterns, it takes saving Credit Karma Records of any market research, behavior, psychology, user or customer testing, or usability, including any A/B testing, multivariate testing, transcription testing, surveys, focus groups, interviews, clickstream analysis, or eye or mouse tracking studies or heat maps, or session replays or recordings.

The authority was voting to issue the administrative complaint and accept approval 5-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment, after which the committee will decide whether to make the proposed approval order final. Instructions for posting comments appear in the posted notification. Comments must be received 30 days after they are posted in the Federal Register. Once processed, comments will be posted to the bylaws.

note: The Commission issues an administrative complaint when it has “reason to believe” that a law has been or is being broken, and the Commission appears to be in the public interest. When the Commission issues an order of approval on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $46,517.

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