Credit Karma Hurt People’s Credit Scores Using Dark Patterns, FTC Alleges

The popular credit monitoring company tricked people with false “pre-approved” credit card offers Credit Karma found got them to click ads more often.
Credit Karma Tricked People With False ‘Pre-Approved’ Credit Card Offers, FTC Says

The Federal Trade Commission is accusing a company of tricking users into signing up for credit cards with so-called dark patterns. 

Credit Karma, which offers people a free way to check their credit scores, told people that they had “90% odds” and had been “pre-approved” for credit cards that they actually did not qualify to receive, the Federal Trade Commission says in a new complaint. The federal agency alleges that between February 2018 and April 2021, almost one-third of people who were told they would qualify did not, causing them to “unnecessarily” receive a hard inquiry on their credit reports that often hurt their scores.

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The FTC is requiring the personal finance company to pay out $3 million to the people they allegedly deceived and no longer falsely tell people they have been pre-approved for credit cards. 

“Credit Karma’s false claims of ‘pre-approval’ cost consumers time and subjected them to unnecessary credit checks,” said Samuel Levine, the director of the agency’s bureau of consumer protection, in a statement. “The FTC will continue its crackdown on digital dark patterns that harm consumers and pollute online commerce.”

Dark patterns are user interfaces that deceive users in non-intuitive ways. According to the complaint, Credit Karma ran A/B testing experiments that showed that people were more likely to click on ads that said they had been pre-approved than they were on ones that said they had “excellent” odds of approval, which the FTC said constituted a dark pattern. 

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Credit Karma said in a statement on Thursday that the company altered its business so that it no longer tells people they have been pre-approved as of April 2021. 

“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,” Credit Karma chief legal officer Susannah Wright said in a statement. 

Credit Karma lets people monitor their credit online without affecting their score. Part of the way it makes money is by using the data it receives to allow credit card companies and others to send targeted advertisements to people through the site. When someone buys a product, the third-party companies pay Credit Karma.  

“We suggest offers based on your credit, Approval Odds, and money we make from our partners,” the company says on its website. In another area, the company elaborates:  “For instance when you take an offer –– like for a credit card or loan –– through Credit Karma, we usually make some money from one of our partners, like the bank that issues the card or the lender who funds your loan.”

Credit Karma knew people were getting denied after the company told them they had been pre-approved, according to the complaint. As evidence, the FTC cited customer service training materials that said one common issue people complained about was “I was declined for a pre-approved credit card offer .... How is that possible?!?!?!”

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