If you have ever been a victim of accepting “pre-approval” offers, you know how damaging they can be to your credit score. Always read the fine print and never agree to anything if no details are mentioned in the message or email.
Sometimes, the message is drafted by an imposter; other times, the platform you are using is responsible for deceiving you. In the case of the latter, you can do nothing until the fraud is brought to the government’s attention and they act. Such is the story of Credit Karma.
In early September 2022, news broke about a credit monitoring agency called Credit Karma that had been deceiving their customers with “Pre-Approved for Credit Card” offers. Considering the situation, the Federal Trade Commission (FTC) instructed Credit Karma to compensate the victims tricked by the agency’s deceptive methods into applying for a loan or credit card.
Once the news reached social media, people claimed that all Credit Karma users would get a piece of the settlement. According to the FTC, from February 2018 to April 2021, Credit Karma started sending out offers to select users that said they were “pre-approved” for credit cards with misleading disclaimers.
The disclaimer didn’t warn the platform’s users that a hard inquiry would be made, affecting their credit scores. One of the disclaimers even said, “90% Approval Chances.” FTC believes that Credit Karma knew what they were doing. However, the agency has denied this allegation.
According to the FTC complaint, 1/3 of the users were denied because of the underwriting review. The hard inquiry on their credit score reduced their future chances of getting a loan. The complaint reveals other details, such as that Credit Karma didn’t clarify what would happen if a user agreed to the offer.
The agency conducted A/B testing and found out through its marketing material that using the words “Pre-Approval” resulted in increased click rates. The offer was sent via email, with subject lines such as “Congrats. You are pre-approved!” There was an enticing yellow tab with the words “Apply Now,” and beside it was written “90%”, indicating that a user would surely get approved.
After the investigation, Credit Karma agreed to pay $3 million in the settlement, which will be given to the users who received the misleading offer. Even though Credit Karma disagrees with FTC’s ruling, they agreed to the settlement. Apart from the monetary component, Credit Karma has been prohibited from sending out deceiving offers about pre-approval to its users. The FTC has instructed the agency to preserve its records of usability testing and market research.
So, how can the deceived users get their money from the settlement? According to FTC’s official settlement documents, Credit Karma will provide a list of all the users to the FTC who received the offer. FTC itself will contact the victims.
There’s no sign-up page where users can fill out a form for the settlement. Since the Federal Trade Commission voted unanimously and accepted the consent agreement, the settlement details will be available in the Federal Register.
After publication, the public can comment on it for 30 days. The FTC will finalize the deal and distribute the payments via prepaid debit card, PayPal, and check. The FTC hasn’t revealed yet what the payout to each victim will be.