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FTC Action Against Credit Karma Underscores That Conversion Cannot Trump Compliance


The Federal Trade Commission’s recent action against Credit Karma serves as a reminder to advertisers that optimizing consumer conversion is not—and cannot be—the be-all and end-all. Regardless of what split or A/B testing results show, claims must be truthful, substantiated, and not misleading.

Per the FTC’s administrative complaint, Credit Karma advertised third-party credit offers to Credit Karma members as “pre-approved,” but, in fact, the creditors had not pre-approved the credit offers and consumers were required to apply and go through the creditors’ underwriting process. The FTC’s investigation showed that about one-third of those customers were denied the advertised credit.

The FTC made a point to detail in its complaint that Credit Karma had conducted A/B testing against two versions of ad copy: one that advertised the credit as “pre-approved” and one that advertised the chances of qualifying for the credit as “excellent.” The results of the testing showed that the pre-approved claim had a higher click rate.

Describing this conduct as an example of the use of dark patterns, the FTC’s press release noted, “When user interfaces are designed, including with the aid of A/B testing, to trick consumers into taking actions in a company’s interest and that lead to consumer harm, such design tricks have been described as ‘dark patterns.’” Click here, here, and here to read past blog posts about dark patterns, what they are, and how the FTC has been addressing them.

To settle the matter, Credit Karma agreed to pay $3 million in restitution to customers who allegedly were harmed by wasting time applying for credit offers or whose credit scores were impacted by the hard inquiry creditors put on their credit reports when consumers applied for the credit.

The FTC’s complaint and order do not state the legal basis for the FTC’s recovery of monetary relief. Presumably Credit Karma acceded to the FTC’s demand for money to avoid the cost of litigation and in response to the FTC’s threat that it would ultimately file a Section 19 follow-on action seeking consumer redress. The FTC’s decision to seek monetary relief for “wasted time” and the speculative impact of a hard inquiry is concerning, and is something we may see more of as the FTC pursues “dark patterns” in other situations.

Of note, one of the settlement terms requires Credit Karma to preserverecords of any market, behavioral, or psychological research, or user, customer, or usability testing. This clearly signals that the FTC relies on such test results as evidence of misconduct or bad motive, a potentially worrisome development.

The takeaway here is that all ad copy and user interface features must be vetted for compliance regardless of how well they convert.

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