The Federal Trade Commission ordered the personal finance company Credit Karma to pay users $3 million in a class-action sanction. The FTC filed the suit against the company for pushing false credit card pre-approvals on users. The ensuing hard credit check caused unsuspecting users’ credit scores to drop.
The Federal Trade Commission Credit Karma action
The Federal Trade Commission filed the action against Credit Karma on September 1. The suit alleges Credit Karma displayed misleading pre-approval advertisements for third-party credit lines. However, nearly a third of applicants were subsequently denied after a hard credit check.
“Credit Karma’s false claims of ‘pre-approval’ cost consumers time and subjected them to unnecessary credit checks,” said FTC Bureau of Consumer Protection Director Samuel Levine. “The FTC will continue its crackdown on digital dark patterns that harm consumers and pollute online commerce.”
The agency alleges the company violated section 5 of the Federal Trade Commission Act (15 USC 45). Accordingly, the code prohibits “unfair or deceptive acts or practices in or affecting commerce.” Essentially, Credit Karma committed fraud by misidentifying the credit offers. Furthermore, they allegedly hid the fact that the advertised offers were not pre-approvals in the fine print of disclaimers. In addition, the action notes that Credit Karma has a section in its customer service training material referring to pre-approval denials.
FTC enforcement action
Under the Federal Trade Commission Act, the agency ordered Credit Karma to end its deceptive practices against consumers. Accordingly, along with the $3 million settlement, all future advertisements about credit line approval odds must be forthcoming. In addition, the company must now keep detailed research records of any market, consumer behavior, surveys, and other metrics.
At the time of publication, there is no information about class size. However, in a 2020 press release, Credit Karma boasted over 100 million users. The suit targets the company’s actions between 2018 and 2021.
