In the history of marketing, “pre-approved” ranks alongside “free” and “low-calorie” as terms guaranteed to grab people’s attention. The FTC just announced a $3 million settlement with Credit Karma for allegedly luring consumers into purchasing “pre-approved” financial products, including major credit cards, through deceptive promises. the truth? For many of these offers, almost one-third of people who received a Credit Karma “pre-approved” offer and put in the time and effort to apply were turned down.
Credit Karma has a consumer-facing website and mobile app where people can access credit information and find financial calculators and other resources. Credit Karma also uses its website and apps to market third-party financial products, including credit cards. To use most of Credit Karma’s tools, people must register for an account by providing personal information, including their name, date of birth and the last four digits of their Social Security number. Credit Karma also gathers more information about them from other sources – and the company isn’t kidding here. Credit Karma “has accumulated more than 2,500 data points, including each member’s credit and income information,” according to the complaint.
Beginning in 2018 and for at least three years thereafter, Credit Karma made “pre-approval” claims on its website, apps, and in email marketing to consumers. For example, the subject line of an email sent to someone with a Credit Karma account is “You are pre-approved for this American Express card.” When consumers open the message, they see a picture of their credit card and the assurance “You’re pre-approved.”
Credit Karma uses large fonts, repetition, and colorful graphics throughout the campaign to convey the message “You’re pre-approved.” But even if Credit Karma puts any so-called qualifications on such clear claims, the “disclaimer” is usually smaller and less compelling than the prominent “pre-approval” claim. Even if consumers read the additional text, Credit Karma will allay concerns by using reassuring statements such as “Approval is not guaranteed, but 90% of pre-approved applicants will get this card.”
So what exactly happens when a consumer decides to accept Credit Karma’s “pre-approved” offer? For many offers, nearly a third of “pre-approved” applicants were denied based on underwriting review, the actual process by which financial products firms make actual approval decisions, the complaint said. What’s more, when consumers apply for credit offers, complaints allege financial entities place a “hard pull” on their credit reports, which often lowers the consumer’s credit score—a situation not unlike when consumers are told they are “pre-payment.” – officially recognized.” The result: After wasting a lot of time applying for offers, many consumers find themselves without a “pre-approved” credit card or loan and with a damaged credit score, making it harder for them to obtain other financial products in the future. .
You’ll have to read the complaint to learn the details, but the FTC alleges that Credit Karma knew it was emphasizing “pre-approval” claims and refused to otherwise describe the offer. For example, the company conducted an A/B test to compare versions of its marketing materials and learned that “pre-approved” claims led to increased click-through rates compared to versions that told people they had an “excellent” chance of approval.
Not surprisingly, Credit Karma’s “pre-approval” statement conveys certainty to consumers. The company’s own training materials tell its customer service representatives that they may hear people asking “I was denied a pre-approved credit card offer…how is this possible?!?!?!” Good question. As one Credit Karma employee said, “If you’re told you’re pre-approved, that means you’re pre-approved. It doesn’t mean you have a good chance. If all you have is a good chance , then we should call it that.”
In addition to seeking $3 million in damages from consumers harmed by Credit Karma’s conduct, the proposed settlement prohibits the company from making deceptive statements about whether people received or were pre-approved for credit offers or the odds or likelihood that they would be approved. Once the proposed settlement is published in the Federal Register, the FTC will accept comments for 30 days.
What can other companies learn from the actions in this case?
The FTC continues to expose dark patterns. The 2021 “Expose Dark Patterns” campaign and the multiple enforcement actions taken before and after it demonstrate the agency’s commitment to challenging interfaces, text, design elements, etc. that lure consumers into misleading transactions. The illegal methods used by companies vary widely, but they all have one thing in common: they are based on deception or unfairness, in violation of the Federal Trade Commission Act.
time is money. Under the proposed order, the FTC will refund $3 million to consumers whose time was wasted by Credit Karma’s deceptive claims. The message to other companies is that it’s a bad idea to lure people in with misleading statements and then waste their time on an online obstacle course that doesn’t deliver the advertised benefits.
Think like a customer. Bringing people in under false pretenses could draw the ire of consumers and the attention of law enforcement. That’s why advertisers should review their websites, apps, and marketing materials through the eyes of potential customers. Part of a consumer-centric approach should include regularly evaluating consumer complaints and listening to what people think of customer service representatives.
