FTC Orders Credit Karma to Halt Fake Credit Offers

The credit services company must pay $3M to consumers and stop false offers.

Federal Trade Commission (FTC) regulators voted unanimously to accept an agreement Thursday that ordered Credit Karma to pay $3 million to consumers for misleading them with promises of credit card "pre-approvals" despite knowing those guarantees weren't real. The order mandates that the company cease from making such claims in the future and requires extra record preservation efforts to ensure that "dark patterns" would no longer be used to push users into making bad decisions for the company's benefit.

Key Takeaways

  • The FTC complaint alleged that Credit Karma willfully misled its users into applying for credit cards.
  • That deception ran for more than three years, using "dark patterns," during which time users wasted time on applications and hurt their credit scores.
  • As a result, Credit Karma must pay $3 million to affected users and stop misleading users through "pre-approvals" and the use of "dark patterns."

FTC: Credit Karma Used Data to Mislead Consumers

As a credit services company, Credit Karma has long positioned itself as an easy way for the average consumer to keep track of their credit score and apply for a range of financial products. One of those products is credit cards. With access to more than 2,500 data points including personal income and credit rating, the FTC said Credit Karma then used that information to send targeted ads for credit cards and other financial products.

According to the FTC's complaint, Credit Karma violated Section 5 of the Federal Trade Commission Act from February 2018 to April 2021 by sending ads that told users they were "pre-approved" for certain credit card offers even though third-party lenders hadn't yet reviewed any financial information. As a result, nearly a third of applicants for those offers were rejected.

While getting denied for a credit card isn't harmful to your credit score, the hard inquiry while applying is. The FTC suggests what Credit Karma was doing was by design.

“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.. “The FTC will continue its crackdown on digital dark patterns that harm consumers and pollute online commerce.”

The FTC describes the term dark patterns as how user interfaces "can have the effect, intentionally or unintentionally, of obscuring, subverting, or impairing consumer autonomy, decision-making, or choice."

According to the FTC complaint, Credit Karma knew its interface drew users to those "pre-approvals." To combat this, the FTC is requiring that Credit Karma keep extensive records about any related research or testing.

Following the FTC's decision, Credit Karma Chief Legal Officer Susannah Wright said the company took exception with the commission's allegations, but accepted the agreement to keep business going uninterrupted.

“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,” said Wright.

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  1. Federal Trade Commission. "Agreement Containing Consent Order - FINAL CK Order 9-1-22.pdf"

  2. Federal Trade Commission. "FTC Takes Action to Stop Credit Karma From Tricking Consumers With Allegedly False “Pre-Approved” Credit Offers"

  3. Federal Trade Commission. "Complaint - CK Complaint 9-1-22 (Redacted).pdf"

  4. Experian. "Do Rejected Credit Applications Affect Your Credit Scores?"

  5. Credit Karma. "Credit Karma: FTC Agreement Allows Company to Maintain Focus on Helping Members Make Financial Progress."