FTC Settles with Credit Karma Over Allegations of Dark Patterns Used to Deceive Consumers in False "Pre-Approved" Credit Card Offers | Practical Law

FTC Settles with Credit Karma Over Allegations of Dark Patterns Used to Deceive Consumers in False "Pre-Approved" Credit Card Offers | Practical Law

The Federal Trade Commission's (FTC) settlement with credit services company Credit Karma includes $3 million in consumer redress for its alleged use of dark patterns to deceive consumers into entering false "pre-approved" credit card offers.

FTC Settles with Credit Karma Over Allegations of Dark Patterns Used to Deceive Consumers in False "Pre-Approved" Credit Card Offers

by Practical Law Commercial Transactions
Published on 07 Sep 2022 • USA (National/Federal)
The Federal Trade Commission's (FTC) settlement with credit services company Credit Karma includes $3 million in consumer redress for its alleged use of dark patterns to deceive consumers into entering false "pre-approved" credit card offers.
The Federal Trade Commission (FTC) has settled with credit services company Credit Karma over allegations that Credit Karma deceived consumers by advertising false "pre-approved" credit card offers
The FTC alleged that from February 2018 to April 2021, Credit Karma deceived consumers into thinking they were "pre-approved" for credit offers. Credit Karma included a disclaimer that applicants had "90% odds" of approval which the FTC alleged was buried and also false.
The deceptive language lead consumers into acting upon those offers by providing personal information and agreeing to a credit check to apply for a credit card, which potentially hurt their credit scores when they were denied.
According to the FTC, Credit Karma engaged in "dark patterns" by using A/B testing in its offers to trick consumers into taking actions in Credit Karma's interests that lead to consumer harm. A/B testing compares two versions of something to determine which performs better. In particular, the FTC found that Credit Karma used A/B testing to show that consumers were more likely to click on offers saying "pre-approved" than those saying they had "excellent" odds of being approved. Consequently, the FTC alleged that Credit Karma violated Section 5 of the Federal Trade Commission Act.
The FTC order requires Credit Karma to:
  • Pay $3 million to consumers harmed by Credit Karma's actions.
  • Stop making deceptive claims about whether consumers are approved or pre-approved for a credit offer, and the odds or likelihood of approval.
  • Preserve records of any market, behavioral, or psychological research, and user, customer, usability, and other similar consumer behavior testing to help prevent further use of deceptive dark patterns.
The FTC's 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.
For more information about dark patterns and FTC's enforcement actions, see Article, Dark Patterns: Trends and Developments: Federal Trade Commission and Practice Note, FTC Enforcement of Advertising Claims.