Credit Karma's $3 million fine for alleged false pre-approvals finalized

The Federal Trade Commission announced Monday it had finalized an order to make Credit Karma pay $3 million for allegedly giving consumers false pre-approval offers on credit cards.

Credit Karma told consumers who got the pre-approval offers that they had a 90% likelihood of approval, but almost a third of consumers who applied for some supposedly pre-approved offers got denied, according to the FTC. To add insult to injury, many denied applicants then suffered a hit to their credit scores.

After the FTC announced in September it had reached an agreement with Credit Karma in the case, a spokeswoman for the company said that it could not verify "the numbers cited in the FTC complaint," and that fewer than 1,500 people had ever contacted the company stemming from matters related to the allegations. The commission voted 4-0 to approve the final order.

In marketing tests, Credit Karma found that pre-approval offers got better click rates than marketing language about "excellent" odds of approval even though, according to the FTC, the pre-approval claims conveyed "false certainty" to many consumers.

Credit Karma has stopped using the pre-approval messaging over which it has been fined, the company said in September. The company had used the pre-approval messaging from at least February 2018 to April 2021, according to the FTC.

Credit Karma has also dropped percentages about approval odds from many of its marketing materials, opting instead to tell consumers they have "excellent," "very good," "good" or "fair" odds of approval.

In a disclosure accompanying these marketing materials, the company says it determines approval odds by "comparing your credit profile to other Credit Karma members who were approved for this product, or whether you meet certain criteria determined by the lender."

One of the card issuers whose products Credit Karma advertised told the FTC it does not pre-approve, pre-qualify or pre-select consumers to whom to offer its credit card via Credit Karma, the commission found. The FTC did not name the card issuer.

According to a proposed agreement between the FTC and Credit Karma, the company neither admitted to nor denied any of the allegations. In a September press release, Credit Karma's chief legal officer, Susannah Wright, denied the allegations, saying the company fundamentally disagreed with the FTC's allegations and reached the agreement to "avoid disruption to our mission."

The FTC said the proceeds of the $3 million fine against Credit Karma will go back to consumers who "wasted time applying for these credit cards."