Incorrect Offers

The Federal Trade Commission (FTC) is returning over $2.5 million to consumers who were misled by false credit card offers on Credit Karma’s platform.

This payment is the result of an action initiated by the FTC two years ago after uncovering “dark digital patterns.” The agency alleged that Credit Karma presented users with card offers they claimed to be pre-approved” for, or had a 90% chance of obtaining, when in fact they did not qualify.

The credit card industry is tightly regulated, and consumers are generally protected against unfair, deceptive marketing practices,” said Ben Danner, Senior Credit and Commercial Analyst at Javelin Strategy & Research. This underscores to industry participants that deceptive advertising campaigns will not be tolerated in the credit space.”

Data Collection

Credit Karma is known for its credit score and reporting tools, but accessing these services requires providing extensive personal data. The FTC reported that Credit Karma gathered over 2,500 data points on its users, including credit and income information.

The company used this data to send personalized ads and credit card offers. Upon clicking a pre-approved” offer, the platform conducted a hard pull of the user’s credit report, which could damage their score if the card was denied.

According to the FTC, Credit Karma was aware that its pre-approved card offers created false hope for consumers. In training materials for customer service personnel, Credit Karma acknowledged that denial of a pre-approved offer was a common complaint among users.

About one-third of Credit Karma’s pre-approved” customers were denied after submitting applications. Despite this, the fintech often buried such information in legal disclaimers.

Regulatory Concerns

Regulators have growing concerns about the role fintech companies play in the banking-as-a-service (BaaS) model. While most financial technology firms heavily handle consumer data, they aren’t subject to the same regulations as traditional banks.

This issue came to a head with the Synapse failure, where lax accounting practices cost customers millions. There was widespread speculation that such collapses could lead to a reset of the BaaS model, and recently, the FDIC has rolled out new rules aimed at holding fintechs accountable under the same regulations as banks.