Before the Federal Trade Commission took action, consumer financial services company Credit Karma had a lot going for it: a sleek design, an easy app, and high-powered partners such as American Express, Mastercard, and a number of other name-brand lenders. Credit Karma made credit monitoring easy–and it made applying for additional credit a little too easy, according to the FTC, which recently fined Credit Karma $3 million for false pre-approval of loans.
Is It Karma?
The Credit Karma mobile application offers a variety of tools, including financial calculators, lists of debts, estimates of credit scores, and pre-approval odds. According to the complaint filed by the FTC, consumers provided Credit Karma with personal information, including date of birth, occupation, and social security number. In turn, Credit Karma advertised financial products to consumers with language suggesting that the potential borrower was pre-approved for a number of financial products.
In fact, despite the pre-approval claims in these marketing messages, the consumer had not been approved by these companies. When a consumer clicked to sign up, they were asked for even more personal information, and a hard inquiry was then sent to redeem these financial products, often resulting in a rejection. According to the FTC, “almost a third of consumers who received and applied for ‘pre-approved’ offers were subsequently denied based on the financial product companies’ underwriting review.” Exacerbating consumers’ woes in certain cases was the fact that these inquiries lowered the consumers’ credit scores by adding a record of a declined financial service.
FTC Cracks Down on Credit Karma
As part of this case, the FTC included exhibits showing Credit Karma employee training materials on how to handle customers who were upset by being denied loan approval. The FTC order goes to show that preying on consumers by using false approval odds does come back to haunt a company–like karma.