Credit Karma to Pay its Users $3M For False Pre-Approved Credit Cards and Damaging Their Credit Scores

Iesha September 7, 2022 News Leave a comment

Credit Karma is being ordered to pay its users $3 million for false promises of being preapproved for credit cards.

A credit check revealed that almost one-third of its consumers who applied for credit cards listed as preapproved by Credit Karma was later turned down.

The Federal Trade Commission complained that the marketing initiatives wasted consumers’ time and damaged their credit scores.

The lawsuit claims Credit Karma violated the FTC Act between February 2018 and April 2021 by marketing products that consumers were either “Pre-Approved” for or had “90% odds” of being approved for but ultimately weren’t eligible for.

Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, said, “Credit Karma’s false claims of ‘preapproval’ cost consumers time and subjected them to unnecessary credit checks.”

Credit Karma responded by issuing a statement that said while it disagreed with the FTC’s allegations, an arrangement had been made so that the company could return to assisting clients. The claim states that Credit Karma only receives payment when customers are granted access to products like credit cards.

“The FTC’s allegations are focused on Credit Karma’s historical use of the term ‘preapproved’ for a small subset of the credit card, and personal loan offers available on Credit Karma’s platform before April 2021 and does not challenge the approval odds language Credit Karma has provided to its members since April 2021,” the statement said.

“What we know today is only less than 1,500 people have ever contacted us stemming from anything related to this.”

The complaint claims that Credit Karma was aware that its tactics were deceptive. “Confusion about preapproval” is a standard issue that consumers raise in training materials for customer service representatives.

To use Credit Karma’s services, users must provide personal information. The company utilizes the data to customize marketing strategies for the individual, including recommendations for preapproved credit cards and loans.

One credit card company said, “The Company does not preapprove, prequalify, or preselect consumers to whom to offer the [Company’s credit card] via Credit Karma.”

Consumers harmed by Credit Karma’s predatory practices will receive $3 million from the FTC. The company will also need to stop misleading consumers about credit offer approvals through an order requiring the company to preserve records of its marketing activities.