The Federal Trade Commission has taken action against credit services company Credit Karma for deploying dark patterns to misrepresent that consumers were “pre-approved” for credit card offers. The FTC alleges that the company used claims that consumers were “pre-approved” and had “90% odds” to entice them to apply for offers that, in many instances, they ultimately did not qualify for. The agency’s order requires the company to pay $3 million that will be sent to consumers who wasted time applying for these credit cards and to stop making these types of deceptive claims.
“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.”
Credit Karma provides tools that allow consumers to monitor their credit scores and credit reports. To use Credit Karma’s services, consumers must provide the company with a variety of personal information, allowing Credit Karma to amass over 2,500 data points on each consumer, including credit and income information. Credit Karma uses that information to send targeted advertisements and recommendations for financial products, like credit cards.
The FTC’s proposed complaint alleges that, from February 2018 to April 2021, Credit Karma falsely told many consumers that they had been “pre-approved” for credit offers, leading consumers to apply, incur a hard inquiry on their credit reports, and, if they are denied, potentially damage their credit scores unnecessarily. According to the FTC’s complaint, Credit Karma knew that its purported “pre-approvals” conveyed false “certainty” to consumers, based on the results of experiments, also known as A/B testing, showing that consumers were more likely to click on offers saying “preapproved” than those saying they had “excellent” odds of being approved. When user interfaces are designed, including with the aid of A/B testing, to trick consumers into taking actions in a company’s interest and that lead to consumer harm, such design tricks have been described as “dark patterns.” Dark patterns were the focus of a public workshop held by the FTC last year.
According to the FTC’s complaint, Credit Karma violated Section 5 of the Federal Trade Commission Act by falsely representing that consumers were pre-approved for credit offers or had 90% odds of approval. The complaint alleges that Credit Karma’s conduct harmed consumers by:
- Deceiving them about whether they were approved: Despite Credit Karma’s claims that consumers were “pre-approved,” for many offers, almost a third of consumers who applied were in fact denied. Credit Karma often only revealed the possibility of denial in buried disclaimers or false claims that consumers had “90% odds” of approval. Credit Karma was aware that its consumers were misled: for example, its own customer service training materials cited “I was declined for a pre-approved credit card offer …. How is that possible?!?!?!” as a common issue representatives would encounter.
- Costing consumers time and harming their credit score: The complaint alleges that, in response to Credit Karma’s false claims, numerous consumers wasted significant time applying for credit card offers. Additionally, when consumers applied for these offers, third party financial companies made a “hard inquiry” on their credit reports, which in many instances lowered consumers’ credit scores and harmed their ability to secure other financial products in the future.
Enforcement Action
Under the FTC Act, the FTC has the authority to take action against companies for engaging in unfair and deceptive acts or practices. The FTC’s proposed order against Credit Karma requires the company to:
- Stop deceiving consumers: The FTC’s order prohibits Credit Karma from deceiving consumers about whether they are approved or pre-approved for a credit offer, as well as about the odds or likelihood that a consumer will be approved for a credit offer.
- Pay $3 million in consumer redress: The order requires Credit Karma to pay $3 million to the FTC, which will be sent to consumers who were harmed by the company’s actions.
- Preserve records: To help prevent further use of deceptive dark patterns, the order requires Credit Karma to preserve records of any market, behavioral, or psychological research, or user, customer, or usability testing, including any A/B or multivariate testing, copy testing, surveys, focus groups, interviews, clickstream analysis, eye or mouse tracking studies, heat maps, or session replays or recordings.
The Commission vote to issue the administrative complaint and to accept the consent agreement was 5-0. The FTC will publish a description of the consent agreement package in the Federal Register soon. The agreement will be subject to public comment, after which the Commission will decide whether to make the proposed consent order final. Instructions for filing comments appear in the published notice. Comments must be received 30 days after publication in the Federal Register. Once processed, comments will be posted on Regulations.gov.
NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $46,517.