The Federal Trade Commission has fined Credit Karma $3 million misrepresenting to consumers that they had been pre-approved for credit card offers, thereby enticing those individuals to apply for cards they ultimately were not qualified to be approved for.
Credit Karma allegedly told consumers they had “90% odds” of being approved for the offers, leading consumers to apply and incurring a hard inquiry on their credit reports, which could have unnecessarily damaged those consumers’ credit scores. Credit Karma allegedly relied on testing that indicated consumers were more likely to click on offers that said they were “preapproved” for a card rather than those saying they had “excellent” odds of being approved. Using A/B testing results to trick consumers are an example of how companies are using “dark patterns” based on data analysis, according to the FTC.
How did Credit Karma know that its customers were being misled? The FTC noted that the company’s customer service training manual included a section entitled “I was declined for a pre-approved credit card offer … How is that possible?!?!?!” as a common issue that representatives would encounter.
The FTC also accused Credit Karma of leading consumers to waste “significant time” applying for credit card offers and facing the consequences of hard inquiries on their credit reports that lowered consumers’ credit scores and “harmed their ability to secure other financial products in the future.”
Credit Karma’s $3 million penalty will be used to repay consumers who were harmed by the company’s actions. The company is also required to stop deceiving consumers about whether they have been pre-approved for a credit offer and preserve their records to prevent further use of deceptive dark patterns.
“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, in a statement. “The FTC will continue its crackdown on digital dark patterns that harm consumers and pollute online commerce.”