The Federal Trade Commission has filed a lawsuit that alleges the website “Credit Karma” deceived people by falsely claiming that they had been “pre-approved” or had “90% odds” of approval for credit cards or loans.
Credit Karma is a consumer technology platform. Banks and lenders use Credit Karma to promote their financial products. Many people who got “pre-approved” credit offers, weren’t approved for credit and wasted time applying and saw their credit scores drop when their applications were denied.
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According to the FTC, Credit Karma sent its users recommendations in the form of deceptive “pre-approved” credit offers from at least February 2018 through April 2021, knowing that users were more likely to respond if they believed their applications would be accepted. But, the FTC says, for many of the supposed offers, nearly a third of the people who applied were rejected by the companies whose product Credit Karma recommended, based on disqualifying financial characteristics, like bankruptcies.
The FTC says, the companies’ reviews showed up as hard inquiries on the rejected applicants’ credit reports. A “hard inquiry” indicates that you have applied for credit and can lower your credit score. People also wasted significant time applying for credit cards they weren’t eligible to get, the FTC says.
Under a settlement, Credit Karma will pay $3 million to reimburse people who responded to its allegedly deceptive offers, but were ultimately denied credit.
Credit Karma responded to the FTC agreement Thursday. “We fundamentally disagree with the FTC’s allegations about marketing terms that aren’t even in use anymore, but ultimately we reached this agreement to avoid disruption to our mission and maintain our focus on helping our members find the financial products that are right for them,” said Susannah Wright, Chief Legal Officer at Credit Karma. “Our industry-leading technology provides the transparency our members need to shop for financial products with more confidence.”
Credit Karma says its business model is structured to ensure its success is aligned with the needs of its members and partners. It only gets paid when members are approved for credit cards and personal loans and receives no compensation when members are denied.