WASHINGTON – The Federal Trade Commission has taken action against credit services company Credit Karma for employing “dark patterns” to misrepresent that consumers were “pre-approved” for credit card offers.
The FTC alleges the company used claims that consumers were “pre-approved” and had “90% odds” to entice them to apply for offers that, in many instances, they ultimately did not qualify for. In fact, almost one-third of consumers who applied were denied.
The agency’s order requires the company to cease making these types of deceptive claims and to pay $3 million that will be used to compensate consumers who wasted time applying for these credit cards.
“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. “The FTC will continue its crackdown on digital dark patterns that harm consumers and pollute online commerce.”
Credit Karma, a Delaware limited liability company with its principal office in Oakland, California, provides tools that allow consumers to monitor their credit scores and credit reports.
To use Credit Karma’s services, consumers must provide the company with a variety of personal information, allowing Credit Karma to amass more than 2,500 data points on each consumer, including credit and income information. Credit Karma uses that information to send targeted advertisements and recommendations for financial products such as credit cards.
The FTC’s proposed complaint alleges that from February 2018 to April 2021, Credit Karma falsely told many consumers that they had been pre-approved for credit offers, leading consumers to apply, incur a hard inquiry on their credit reports, and, if they were denied, potentially damage their credit scores unnecessarily.
According to the FTC’s complaint, 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.
When user interfaces are designed, including with the aid of A/B testing, to trick consumers into taking actions in a company’s interest and that lead to consumer harm, such design tricks have been described as “dark patterns.”
According to the FTC’s complaint, Credit Karma violated the Federal Trade Commission Act by falsely representing that consumers were pre-approved for credit offers or had 90% odds of approval. The complaint alleges that Credit Karma’s conduct harmed consumers by:
• Deceiving them about whether they were approved. Despite Credit Karma’s claims that consumers were “pre-approved,” the company disclosed the possibility of denial only in buried disclaimers or false claims that consumers had “90% odds” of approval. Credit Karma was aware that its consumers were misled; for example, its own customer service training materials cited “I was declined for a pre-approved credit card offer .... How is that possible?!?!?!” as a common issue representatives would encounter.
• Costing consumers time and harming their credit score. The complaint alleges that, in response to Credit Karma’s false claims, numerous consumers wasted significant time applying for credit card offers. Additionally, when consumers applied for these offers, third-party financial companies made a “hard inquiry” on their credit reports, which in many instances lowered consumers’ credit scores and harmed their ability to secure other financial products in the future.
The FTC’s proposed order against Credit Karma requires the company to stop deceiving customers, pay $3 million in consumer redress, and preserve its myriad records.