Credit Karma has been penalised by the Federal Trade Commission (FTC) for “utilising dark patterns to falsely represent that consumers were ‘pre-approved’ for credit card offers.”
The company allegedly “used claims that consumers were “pre-approved” and had “90% odds” to entice them to apply for offers that, in many cases, they ultimately did not qualify for,” according to the FTC.
According to the agency’s order, “the company is required to stop making these kinds of false claims.
Also company needs to pay $3 million that will be sent to consumers who wasted time applying for these credit cards.”
Credit Karma stated on Thursday that it denies the FTC’s charges that a small portion of its offers use “marketing terms that aren’t even in use anymore”. But that it reached this agreement “to avoid disruption to our mission.”
Does Credit Karma hurt your Credit score?
According to the FTC’s complaint, “numerous consumers” applied for credit card offers with intention of pre-approved offer.
According to the FTC, third-party financial institutions will conduct a “hard inquiry” on applicants’ credit reports during the application process. This can lower applicants’ credit scores and make it more difficult for them to qualify for other financial products.
Credit Karma said, it only gets paid when members are approved for credit cards.
Also it gets paid for personal loans that are advertised on its platform and does not get paid for denials.
Does Credit Karma charge a fee for score?
Customers can keep an eye on their credit reports and scores with Credit Karma. Although the service is free, the FTC affirms that users must disclose personal information like income and credit information.
Credit Karma uses this information to send relevant promotions and suggestions for products like credit cards.
What’s next action?
In addition to the $3 million fine, the FTC’s proposed order forbids Credit Karma from misleading customers about pre approved credit offer.
Also FTC mandates that the company maintain records “to help prevent further use of deceptive dark patterns.”
How many people were deceived by the claims is not stated in the complaint. Fewer than 1,500 people have contacted company with complaints about the pre-approval claims. Also the company was unable to independently verify the figures mentioned in the FTC complaint.