FTC Launches Claims Process for False Credit Karma ‘Preapprovals’

The Federal Trade Commission (FTC) says it wants to help consumers hurt by misleading “preapproval” Credit Karma offers.

The FTC announced Tuesday (Dec. 5) that it was launching a claims process for nearly 500,000 consumers involved in the matter.

The agency last year fined Credit Karma $3 million after accusing the company of making deceptive claims that consumers were “preapproved” for credit card offers. But in several cases, those consumers were not qualified, wasting their time and involving them in needless credit checks.

“The FTC received roughly 30 complaints involving Credit Karma’s ‘pre-approved’ offers in the five years prior to announcing its action against the company,” the announcement said.

“But within five months of that announcement, the agency received nearly 900 more such complaints. This is consistent with the FTC’s experience that consumer complaints represent the tip of the iceberg compared to the number of consumers harmed.”

According to the announcement, the FTC is sending notices to 497,425 consumers who may be eligible for a payment. Consumers can apply if Credit Karma offered them a preapproved credit card which they were later denied.

The FTC has accused Credit Karma of using “dark patterns” to misrepresent the “preapproved” offers. The term “dark patterns” refers to design elements that cause false beliefs, conceal key information, lead to unauthorized charges or dupe customers into sharing personal data.

Credit Karma has denied the FTC’s claims.

In a statement emailed to PYMNTS Tuesday (Dec. 5), an Intuit Credit Karma spokesperson said:

“We fundamentally disagree with allegations the FTC makes in their complaint, which relate solely to statements we ceased making years ago. Any implication that Credit Karma rejected consumers applying for credit cards is simply incorrect, as Credit Karma is not a lender and does not make lending decisions. Rather, Credit Karma helps our more than 130 million members understand their finances, including their likelihood of approval for financial products.  We have a track record of positive outcomes, and members shopping for credit cards on Credit Karma have a significantly higher approval rate than the national average. We reached this agreement to put the matter behind us so we can maintain our focus on helping our members find the financial products that are right for them.”

The FTC’s announcement comes as American consumers have become increasingly reliant on credit cards to manage their finances in the face of rising prices.

According to “Credit Card Use During Economic Turbulence,” PYMNTS Intelligence and Elan collaboration, a third of cardholders say they’ve increased the share of their expenses paid by credit cards prior to the study, while just 15% have reduced their credit card spending.

“This surge in credit card usage is driven by the combination of higher costs and reductions in income, with more consumers turning to credit cards as a means to maintain their financial stability,” PYMNTS wrote last week.