The Federal Trade Commission (FTC) has ordered Credit Karma to pay $3 million to users on allegations that the online credit monitoring company pushed consumers to take out falsely pre-approved credit cards. This inevitably led to damaging their credit scores.
Approximately one-third of users who applied for these credit card products between Feb 2018 and April 2021 were denied approval after a credit check, even though Credit Karma had labeled as “preapproved” (with 90 percent approval odds). According to the FTC complaint, these marketing efforts wasted the time of those consumers who applied and, of course, negatively impacted their credit scores.
In a news release, FTC Bureau of Consumer Protection Director Samuel Levine argues, “Credit Karma’s false claims of ‘pre-approval’ cost consumers time and subjected them to unnecessary credit checks.”
Now, this is not criminal, and even the result is not immediately problematic but, again, the false claims have inconvenienced many people. Of course, Credit Karma collects credit data from its customers—including income data—and uses that information to customize targeted advertising; specifically credit cards and other related financial products. Most importantly, though, applying for credit products of any kind—especially those which result in denial—adds a hard inquiry to your credit report.
These two things—the hard inquiry and application denial—will damage a person’s credit score. Unfortunately, though, the issues don’t simply end there, as a low credit score reduces the likelihood a person will be able to obtain any kind of credit line in the future. This means, then, that a customer who might be enticed by the “pre-approved” advertising, could apply for a credit product only to result in a denial, which would then make it even harder to receive approval later.
Effectively, an FTC press release states, “Despite Credit Karma’s claim that consumers were ‘pre-approved’ for many offers, almost a third of consumers who applied were, in fact, denied. Credit Karma often only revealed the possibility of denial in buried disclaimers.”
With this, then, the FTC has proposed that Credit Karma pay a charge of $3 million, which will then be dispersed to consumers who may have been harmed by their actions.
