By Randy Hutchison
President of the BBB of the Mid-South
I was a banker before joining the BBB and for most of my career managed credit card programs. The primary way we obtained new accounts was sending pre-approved offers to consumers whose credit records met our criteria. With few (very few) exceptions, we approved the applications of people who responded to our offer because it was the legal and right thing to do.
According to the FTC, credit services company Credit Karma felt no such obligation. Credit Karma recommends financial products to its users and is paid by the companies that sell the products when a user buys one. The company collects a massive amount of information about its members, some of it from them and some from other sources.
The FTC alleges that for over three years Credit Karma told consumers they were “pre-approved” or “had 90%” odds of being approved for credit card offers. One email they sent used the subject line “You’re pre-approved for this Amex card” and had a picture of an Amex card in the body of the email and the word “pre-approved” again.
But in reality, after a full underwriting of the applicant’s qualifications, the companies whose products Credit Karma promoted declined nearly a third of applications in some campaigns. Some people that Credit Karma “pre-approved” had declared bankruptcy. The possibility of being declined was sometimes buried in disclaimers that were hard to find and hard to read, in contrast to the large type and colorful graphics that repeatedly conveyed the pre-approved message.
The FTC says Credit Karma knew that consumers would be confused about how they could be declined for a pre-approved offer. Its own training materials advised its customer service representatives to expect to get that question. The FTC’s press release doesn’t relay what Credit Karma’s recommended answer was, but it quotes one employee who apparently understand it wasn’t right as saying “If you are told you are pre-approved, that should mean you are pre-approved. That shouldn’t mean you have a good chance. If all you have is a good chance then we should call it that.”
Such practices constitute what the FTC calls “digital dark patterns.” They include manipulative user interfaces that lead consumers to purchase products or services they might otherwise not buy. The Director of the FTC’s Bureau of Consumer Protection said, “The FTC will continue its crackdown on digital dark patterns that harm consumers and pollute online commerce.”
The FTC said Credit Karma’s deception wasted consumers’ time when they accepted credit card offers only to be declined. And in the process, the financial companies made a “hard inquiry” into their credit reports, which in many cases lowered consumers’ credit scores and harmed their ability to get other financial products.
Credit Karma will pay $3 million to settle the FTC’s charges, have to reform its practices, and have to preserve records of the various marketing techniques it tests and employs.
The FTC’s message to other businesses is to evaluate their websites and marketing materials through the eyes of prospective customers and not waste their time with an online obstacle course that doesn’t result in the advertised benefit.