FTC Fines Credit Karma $3M for False Pre-Approvals

Credit Karma

The Federal Trade Commission (FTC) says it has ordered personal finance company Credit Karma to pay a $3 million penalty for telling consumers they were pre-approved for credit cards for which they were not actually qualified.

According to a Thursday (Sept. 1) news release, the funds will be given to “consumers who wasted time applying for these credit cards.” Credit Karma was also ordered to cease making “these types of deceptive claims,” which the FTC says subjected people to unnecessary credit checks.

The FTC alleges that between February 2018 and April of last year, Credit Krama falsely told a number of consumers they’d been pre-approved for credit. This led these consumers to apply, which lead to a hard inquiry on their credit reports and potential damage to their scores.

“Credit Karma knew that its purported ‘pre-approvals’ conveyed false ‘certainty’ to consumers, based on the results of experiments, also known as A/B testing, showing that consumers were more likely to click on offers saying ‘preapproved’ than those saying they had ‘excellent’ odds of being approved,” the FTC said in the release.

Credit Karma Chief Legal Officer Susannah Wright said in a Thursday news release that the company disputes the FTC’s allegations but reached an agreement with the agency “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 argues the FTC’s allegations center on the company’s past use of the term “pre-approved” for a small number of offers and do not challenge the approval language the company has used since April 2021.

Read more: FTC Sends $9.7M in Fee Refunds to LendingClub Customers

Last month, the FTC issued more than $9.7 million in payments to consumers in a similar case involving LendingClub. The FTC sued LendingClub in 2018 over claims that the company falsely promised applicants that they’d get a specific amount without hidden fees. The company had deducted hundreds or even thousands of dollars in hidden upfront fees from the loans, the FTC said.

In addition, the FTC said LendingClub told consumers were approved for loans when they weren’t, which kept them from seeking loans at other places. LendingClub also allegedly withdrew money from consumers’ accounts without permission.