The Federal Trade Commission (FTC) announced its action against Credit Karma, a personal finances company with over 100 million users in the United States, on September 1. According to the FTC, Credit Karma pushed customers to apply for credit offers with claims that they were “pre-approved” and had “90% odds”—despite the fact that many people never qualified.
Almost one-third of customers who applied for some of these “pre-approved” offers were denied, alleged the FTC. The agency has ordered Credit Karma to pay $3 million, which will be sent out to customers who “wasted time applying for these credit cards.” It also said the company must stop “tricking” customers and preserve records of its marketing.
The company allegedly issued misleading offers between February 2018 and April 2021. Customers who applied, falsely believing they were “pre-approved,” incurred a hard inquiry on their credit reports. This could unnecessarily damage their credit scores if they were denied, alleged the FTC’s complaint.
A poor credit profile, even with a high income, affects nearly every aspect of everyday life in the United States. A person with a bad credit score can see their loans rejected, their housing applications denied by landlords and their insurance premiums shooting up even if they are in good health. Their job opportunities might suffer too, as many employers conduct a credit review during background checks.
More than half of Americans—53 percent—have been rejected for a credit card, loan or car due to poor credit, according to a survey by YouGov and ScoreSense in 2019. COVID-19 led people to rack up further debt, with 51 percent of adults adding to their credit balances during the pandemic, according to a 2021 report from CreditCards.com.
“The FTC will continue its crackdown on digital dark patterns that harm consumers and pollute online commerce,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in a news release. Dark patterns describe strategic marketing campaigns designed to subtly influence a user and trick them into taking specific actions.
Credit Karma told Newsweek that it “fundamentally disagrees” with the FTC, saying the agency’s allegations surrounded “marketing terms that aren’t even in use anymore.”
Nonetheless, said Chief Legal Officer Susannah Wright, “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.”
