In the annals of marketing, “pre-approved” ranks right up there with “free” and “low calorie” as terms guaranteed to grab people’s attention. The FTC just announced a proposed $3 million settlement with Credit Karma for allegedly luring consumers with deceptive promises that they were “pre-approved” for financial products, including major credit cards. . The truth? For many of these offers, almost a third of people who received a “pre-approved” offer from Credit Karma and took the time and trouble 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 site and app to market third-party financial products, including credit cards. To use most Credit Karma tools, users must create 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 collects additional information about them from other sources – and the company makes no mistake about it. The complaint alleges that Credit Karma “amassed over 2,500 data points, including credit and income information, per member.”
Beginning in 2018 and for at least three years after that, Credit Karma made “pre-approved” claims on its website, through its app, and in consumer email marketing. For example, an email sent to people with Credit Karma accounts used the subject line “You are pre-approved for this Amex card”. When consumers opened the message, they saw a picture of the credit card and the assurance “you’re pre-approved.”
Credit Karma conveyed the message “you’re pre-approved” throughout its marketing campaign, using large print, repetition and colorful graphics. But even to the extent that Credit Karma qualified this express claim, the “disclaimers” were often smaller and less visible than the important “pre-approved” claim. And even as consumers read the additional text, Credit Karma has eased concerns using reassuring statements such as “Approval not guaranteed, but 90% of pre-approved applicants get this card.”
So what really happened when consumers decided to accept Credit Karma on these “pre-approved” offers? According to the complaint, for many offers, almost a third of “pre-approved” people who applied were turned down, based on a review of underwriting – the actual process used by financial product companies to make real approval decisions. Additionally, when consumers asked for credit offers, the complaint alleges that the financial entity made a “hard pull” on their credit report, which typically lowers a consumer’s credit score – barely that much. what consumers expected when they were told they were “pre-approved.” The result: after wasting a lot of time applying for offers, many consumers found themselves without a credit card or loan “pre-approved” and with a damaged credit rating that made it more difficult for them to obtain other financial products in the future.
You’ll want to read the complaint for more details, but the FTC alleges Credit Karma knew what it was doing by emphasizing the “pre-approval” request and dismissing other ways of describing the offers. . For example, the company ran A/B tests to compare versions of its marketing materials and learned that claiming “pre-approval” resulted in higher click-through rates compared to a version that told people that they had an “excellent” chance of approval. .
Credit Karma could hardly be surprised that its “pre-approval” claims convey certainty to consumers. The company’s training materials told its customer service representatives that they could expect to hear people asking “I was declined for a pre-approved credit card offer… How is that possible? ?!?!?!” Good question. As one Credit Karma employee put it, “If they tell you you’re pre-approved, that should mean you’re pre-approved. It doesn’t mean you have a good chance. If all you have is good luck, then we should call it that.
In addition to demanding $3 million for consumers harmed by Credit Karma’s actions, the proposed settlement prohibits the company from making misleading statements about people’s approval or pre-approval for a credit offer or on the odds or likelihood of them being approved. After the proposed settlement is published in the Federal Register, the FTC will accept comments for 30 days.
What can other companies gain from the action in this case?
FTC will continue to illuminate dark patterns. The Bringing Dark Patterns to Light 2021 event — and multiple law enforcement actions before and since then — demonstrates the agency’s commitment to challenging interfaces, text, design elements, and more that lure consumers into deceptive transactions. The illegal methods used by companies vary greatly, but they all have one thing in common: they are based on deception or injustice, in violation of FTC law.
Time is money. Under the proposed order, the FTC will reimburse $3 million to consumers whose time was wasted by Credit Karma’s misleading claims. The message for other businesses is that it’s no good business luring people in with misleading representations and then wasting their time with an online obstacle course that doesn’t deliver the advertised benefit.
Think like a customer. Bringing people in under false pretences is likely to anger consumers and attract the attention of law enforcement. That’s why advertisers need to look at their websites, apps, and marketing materials from the perspective of potential customers. Part of this consumer-centric approach should include regularly assessing consumer complaints and listening to what people are saying to your customer service representatives.