The Federal Trade Commission (FTC) has announced it will disburse over $2.5 million to approximately 51,000 Credit Karma users affected by deceptive practices.
This recent settlement is a significant win for consumers who were misled by the popular credit-monitoring app.
Credit Karma’s Misleading Practices: A Background
In 2020, the FTC initiated legal action against Credit Karma, which had been acquired by Intuit that same year.
The agency’s complaint centered around allegations that Credit Karma falsely advertised credit card offers as “pre-approved,” leading consumers to waste time applying and, in some cases, damaging their credit scores.
Misleading Claims Lead to $3 Million Settlement
Credit Karma agreed to pay a $3 million settlement to resolve these allegations. According to the FTC, many consumers were assured of “pre-approval” for credit cards, but their applications were ultimately denied. This false assurance resulted in unnecessary credit checks, which negatively impacted consumer credit scores.
| Key Points of the Settlement | Details |
|---|---|
| Misleading Claims | False “pre-approval” promises |
| Compensation Amount | $3 million settlement |
| Number of Affected Customers | 51,000+ |
| Distribution Method | Checks or PayPal transfers |
Impact on Consumers and FTC’s Response
From February 2018 to April 2021, nearly a third of customers who applied for “pre-approved” credit offers through Credit Karma faced rejections. This misleading practice not only wasted customers’ time but also led to adverse effects on their credit scores due to unnecessary hard inquiries.
Allegations Against Credit Karma:
- Hidden Disclaimers: Fine print concealed the true likelihood of approval.
- False Odds: Claims of “90% odds” of approval were exaggerated.
- Internal Knowledge: Training materials allegedly instructed staff on handling complaints related to these misleading pre-approvals.
The FTC’s Samuel Levine, Director of the Bureau of Consumer Protection, emphasized the importance of eliminating deceptive digital practices that harm consumers. The settlement mandates that Credit Karma stop misrepresenting “pre-approval” odds and maintain transparency in their future offers.
Credit Karma’s Response
In response to the FTC settlement, Credit Karma has maintained that the disputed claims were tied to statements discontinued years ago. The company emphasized that it is not a lender and does not make loan decisions.
According to Credit Karma, its members often enjoy higher approval rates than the national average when applying for credit cards.
How the $2.5 Million Payout Will Be Distributed
The FTC will distribute over $2.5 million to 50,994 customers through checks or PayPal payments. These payouts are intended for consumers who were affected by Credit Karma’s misleading claims during the specified period.
Key Distribution Details:
- Payout Method: Checks or PayPal, based on user preference.
- Deadline: Eligible consumers must accept PayPal transfers within 30 days or cash checks within 90 days.
- Potential Additional Distributions: If funds remain, the FTC may issue additional payments to those who cashed their initial checks.
This settlement highlights the FTC’s commitment to holding companies accountable and ensuring fair practices in the financial industry. For affected consumers, the reimbursement serves as compensation for the time and effort lost due to misleading marketing tactics.
FAQs
How do I know if I am eligible for the payout?
Eligibility is determined based on customer data from Credit Karma. If you were affected during the specified period, you will be notified by the FTC.
Do I need to file a claim to receive compensation?
In most cases, no action is required if your contact information with Credit Karma is current. The FTC will either mail checks or send electronic payments automatically.
What should I do if I receive a check or PayPal payment?
Be sure to cash your check within 90 days or accept PayPal payments within 30 days. If you have any issues, contact the settlement administrator for assistance.
