The Federal Trade Commission (FTC) has made a notification regarding a compensation fund of $2.5 million for the reimbursement of 50,994 Credit Karma customers who submit their valid claims on or before March 4, 2024. Reimbursable individuals are to be reimbursed through a combination of mails and digital transfer based on the option selected at the time of registration. Cashing of mailed payable checks will have to be done within 90 days from the date of issuance, while payments made via PayPal should be acknowledged within 30 days.
The settlement with Credit Karma by the FTC was in response to allegations that the consumers were offered credit card applications that were misleading and hurt their creditworthiness as well as wasted their time. Figures obtained from Credit Karma indicate that approximately one out of three consumers who were offered Credit Karma’s ‘pre-approved’ credit cards from February 2018 to April 2021 were actually denied the credit card. In furtherance of the suit, the FTC alleged that Credit Karma advertised certain credit cards with words such as ‘pre-approved’ and ‘90% odds of getting it’, thus making people overestimate their chances of qualification. This situation caused some consumers to fill out applications for credit cards they were not eligible for in order to avoid the hard inquiry into their credit history.
The FTC’s complaint, announced in September 2022, alleged that Credit Karma buried disclaimers in fine print or otherwise misrepresented the likelihood of approval to consumers. In support of this claim, the agency pointed to internal training materials that allegedly instructed Credit Karma employees on how to handle frequent customer complaints from those who were denied for “pre-approved” offers. The FTC argued that these practices were deceptive and contributed to what it termed as “digital dark patterns,” techniques used online to manipulate user actions in ways that may not align with their best interests.
In this regard, Credit Karma has consented to a cash settlement of $3 million, of which over $2.5 million is set aside for individuals who were harmed. As part of the settlement provision, the firm further undertook to stop false advertising about the eligibility for credit cards and to maintain advertising records to avoid the same situation happening in the future.
Managing director of the Federal Trade Commission (FTC) Bureau of Consumer Protection Law Samuel Levine spoke against “false claims of ‘pre-approval’,” made by the credit card companies, which caused needless inquiries on clients credit history. He also emphasized that the FTC will address digital strategies oriented towards unfair exploitation of the customers as well as the instruments that bring about the degradation of the real space.
While Credit Karma has not made any immediate remarks regarding the recent announcement, it was able to express its disagreement with the allegations made in the FTC complaint at an earlier date. In a statement delivered to CBS MoneyWatch, Credit Karma argued that the accusations were relevant only to activities that had been curbed long before. The organization stressed that it is not in the business of making loans, and it does not make decisions with regard to lending, and protests that it is not correct to suggest that any consumer was denied by it. As a result of this, Credit Karma also said that it had settled the issue and, therefore, decided to direct its energy to the important task of linking its members to appropriate financial services.
