The Federal Trade Commission has ordered Credit Karma to pay $3 million to consumers.
FTC officials said the company used claims that consumers were “pre-approved” and had “90% odds” for credit card approval to entice them to apply for offers that, in many instances, they ultimately did not qualify for, according to a press release.
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“Credit Karma’s false claims of ‘pre-approval’ cost consumers time and subjected them to unnecessary credit checks,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection.
Credit Karma collects credit data from consumers, including income information, and uses that data to curate targeted advertisements and recommendations for things like credit cards and other financial products.
A complaint from the FTC alleges that Credit Karma falsely told consumers they had been “pre-approved” for credit products from Feb. 2018 through April 2021.
Some of those consumers then applied for credit, which added a hard inquiry to their credit report, and were then denied.
Denial of a line of credit, coupled with a hard inquiry, damages a person’s credit score.
A lower credit score also decreases the likelihood that a consumer will be able to obtain a line of credit in the future.
According to the complaint, Credit Karma knew the pre-approvals conveyed false certainty of approval to consumers.
“Despite Credit Karma’s claims that consumers were “pre-approved,” for many offers, almost a third of consumers who applied were in fact denied,” the press release states. “Credit Karma often only revealed the possibility of denial in buried disclaimers.”
The FTC’s proposed order against Credit Karma requires the company to pay $3 million to the commission. The FTC will then send that money to consumers who were harmed by the company’s actions.