Credit Karma Told to Halt ‘Pre-Approved’ Credit Card Offers

“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.” 

The term “dark patterns” broadly encompasses all kinds of manipulative practices on the internet that push people toward actions they might not take otherwise. These traps may be deliberate, or just a consequence of poor design. But the result is that people end up paying more than they should for a service, agree to excessive data collection, or just give up valuable extra time and attention.

To use Credit Karma’s services, the FTC says, clients must provide the company a variety of personal information, allowing Credit Karma to amass over 2,500 data points on each individual, including credit and income information. Credit Karma uses that information to send targeted advertisements and recommendations for financial products, like credit cards, the FTC says.

Credit Karma was also ordered to preserve records related to its data monitoring and collection practices. These include market, behavioral, or psychological research; eye or mouse tracking studies; and usability testing, such as A/B or multivariate testing, in which digital consumers are shown different text to gauge which is the most successful in causing them to click on the pertinent information.

Credit Karma, which is owned by the digital financial products giant Intuit, boasts that it has 120 million clients throughout the U.S., the United Kingdom, and Canada, and says its “members” include “almost half of all U.S. millennials.” 

While best known for its free credit score monitoring tools, the company offers many other free financial tools, including identity monitoring, applying for credit cards, shopping for loans (car, home, and personal), and auto insurance, as well as savings and checking accounts through its FDIC member bank partner, MVB Bank.   

The company says it rejects the FTC’s accusation and agreed to settle the case only in order to continue doing business without disruption.

“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,” she said.

In a press release, the company went on to say that banks and financial institutions use massive amounts of data and machine learning models to approve or deny people for financial products. However, it says that because the industry lacks the appropriate transparency, “it’s nearly impossible for the average American to have any indication of whether they are likely to be approved for financial products.” That can lead people to apply for products where they are likely to be denied, it said. 

Though the best way to avoid issues such as those associated with this case is to have a good understanding of the information contained in your credit report and your FICO score, credit can be confusing for consumers. For one, the credit industry is opaque.

There are dozens of credit scores—many of which consumers don’t know about. And when consumers take steps to get clear on where they stand, often the information held by the credit agencies is incorrect. In fact, more than a third of volunteers in a Consumer Reports study say they found errors in their credit reports.