Credit Karma fined $3M by FTC for misleading consumers with credit card offers
thefintechtimes.com
thefintechtimes.com
1. The Criteria are given by the banks via 'Lightbox'. If they were misrepresenting those criteria, it seems like the harm was to the banks, but this isn't mentioned. And if they couldn’t express their criteria via lightbox and used it anyway… again it seems like that’s mostly on the banks.
2. I suspect these estimates were better than nothing, which is basically what bank websites usually give you before you apply.
3. CreditKarma isn’t making the applications. The lenders are the ones forcing a 'hard pull' before telling you if the loan is available to you.
4. The credit score companies are the ones that decided that the 'hard pulls' would reduce people’s credit score for a significant period. Why is this only a problem if they used CreditKarma?
5. The new lender is the one rejecting loan applications based on credit score changes caused by the client shopping around. Why is this only a problem if they used CreditKarma?
**
It seems like there’s a need for a 'credit lock' that absolutely tanks your credit score while you are being checked, to avoid people applying for multiple lines of credit simultaneously.
Having lasting impacts beyond that seems anti-consumer, since it means you’re penalised for shopping around.
CreditKarma was an imperfect band-aid over that, but penalising them for that seems like treating the symptoms and not the cause.
CK was a place where things were so complex (perhaps needlessly) you couldn't find anyone to explain what was going on. On this topic, you could ask people on the data team how their models worked (to determine what card or loan offers show to what users) and they seemed to have no idea, they just wanted to put the models in an AB test and see if conversion numbers went up or down.
Aside from this, there was plenty of politicking and ambitious people. Not surprised no one was really paying attention to whether or not they were running afoul of any laws. Also, I'm going to guess they made more than $3M on these mistakes that likely impacted their users' credit scores negatively.
I believe CK has inside views to the models^ these companies use, and I wouldn't be surprised to find that 90% is actually very close to reality. However, I can also see why someone taking a hard credit pull would be very annoyed to be declined.
Also, Credit Karma gets paid for successful conversions, and maybe ad placement? It doesn't seem like misleading someone got them any profit.
This all around seems like a really weird thing to slap this company with - Credit Karma doesn't really directly profit^^ from getting this wrong, nor do their partners. Yes, Credit Karma screwed up, but to frame it as "misleading consumers" makes it sound a lot worse than it is.
I wonder if there is missing subtext or inside baseball that makes this all make a lot more sense. Regardless, that language does seem misleading, and I'm glad to see it be turned into something more accurate and informative.
^ they seem to have some sort of b2b platform ("lightbox"?) for letting their vendors import their models into credit karma. It's probably pretty powerful for a lender to change and simulate new model changes for targeting offers.
^^ pissing off your users while not making money is always a bad look
The FTC press release[1] says "for many offers, almost a third of consumers who applied were in fact denied". That's quite a ways off from 90%.
[1] https://www.ftc.gov/news-events/news/press-releases/2022/09/...
edit:
>Also, Credit Karma gets paid for successful conversions, and maybe ad placement? It doesn't seem like misleading someone got them any profit.
This is incorrect because misleading causes more people to apply. The people who are coaxed into applying through deception have a non-zero chance of turning into a successful conversion, which makes credit karma money. For instance, if people interested in a credit card, but they're not certain that they'll get approved, so they end up not applying. If there are 100 visitors in that situation, and credit karma lied to them, then they should expect to get 66% (based on the actual approval figures from the FTC) successful conversions (ie. profit).
The statistics don’t play out that easily - their models may be accurate in aggregate but better or worse for specific offers.
or the basis as is obvious is that this was a fraudulent claim. these things get researched thoroughly before they levied
I reread the article again, and it seems to me it was "pre-approved" that was the issue.
Regardless, it's good the behavior was noticed and stopped.
I’d be blown away if this is the case. Credit models are carefully guarded. They’re also expensive to run. If Credit Karma could approximate the pricey model with open-source data, they’d have been bought by a bank, not a tax company.
Also, Intuit is much more than a tax company now.
There are a lot of people doing this. For the aforementioned reason: a cheap approximation of a credit score is valuable. Before the financial crisis, VantageScore was developed by the credit bureaus to disintermediate Fair Isaac. This work continues, and Credit Karma is far from unique in its approach or data.
That’s a different problem than simply evaluating credit risk, and is much less researched — so not the same as the highly guarded credit models.
1. Intuit owns Credit Karma
> Intuit has lobbied extensively against the IRS providing taxpayers with free pre-filled forms, as is the norm in developed countries.[108][11][109]
- https://en.wikipedia.org/wiki/Intuit
2. Intuit owns Mailchimp. Mailchump was hacked earlier this year.
> In a scant blog post dated August 12, just two days after the company’s co-founder and long-time CEO Ben Chestnut stepped down, Mailchimp said a recent but undated attack saw threat actors targeting data and information from “crypto-related companies” using phishing and social engineering tactics. A company spokesperson told TechCrunch that 214 Mailchimp accounts were affected by the incident, which comes just months after hackers compromised an internal Mailchimp tool to access information on 300 accounts.
- https://techcrunch.com/2022/08/16/digitalocean-emails-mailch...
I don't know for sure but I believe this could have been prevented by the use of hardware U2F tokens, the cost of which is pretty small compared to the consequences of this breach, which affected DO and others.
On a personal note, I used to have bad credit, and I grew in the habit of regularly checking my credit score on Credit Karma. They used to send me emails telling me to check my credit score, that my score had fallen, or it had risen, and so on. The emails were unnecessary - it was ingrained in me to check the app on a ~weekly basis. Eventually, I realized that my score had been at an acceptable level for years, and I unsubscribed from the mails, deleted the app off of my phone, and stopped checking. In my opinion, this was predatory behavior, preying on the vulnerabilities and insecurities of people like me or people who had it much worse.
To sum up: Intuit is not a good company. They care about making a buck and don't care about the consumer; in fact they actively work against the consumer. I don't understand why the connection between Mailchimp, Credit Karma, and Intuit is not front and center in all of these articles.
What are some good alternatives to Mint for financial account aggregation?
You're only allowed to budget the money you have currently in your bank accounts and you're encouraged to daily categorize the previous days transactions so you immediately know if you're spending outside of your budget. I've referred a few friends and they all turned into paying customers.
I also have a referral link that gets me a free month: https://ynab.com/referral/?ref=sO-qTzrewvE6obDI
But they give you the free month regardless if you sign up on the main site. Just something nice to do if you try out the service and like it.
I have a referral link as well, but use the link above if you're not comfortable with that: https://lunchmoney.app/?refer=9tdo95yk
That’s quite interesting. Presumably they tried to use this as some excuse, or didn’t have the data available to enable the FTC to make a strong assessment as to how many people were presented with a deceptive offer.
The FTC was created by the Federal Trade Commission Act [1], a federal law. That gives it supremacy over California law.
[1] https://en.wikipedia.org/wiki/Federal_Trade_Commission_Act_o...
So instead we used “team room”. The work never changed, just what we called it.
Clearly if you’re trying to put a competitor out of business then calling it a “team room” won’t matter one bit.
The line is very fuzzy.
It's always been great, so I'm also surprised.
Glad he can afford it.
???
Say what? From day one it wasn’t a one-man company, they had multiple founders from the beginning.
one month? one year?
https://s23.q4cdn.com/935127502/files/doc_financials/2022/q4...
they do alright.
Sort of what you would do to get your analytics script past UBlock.
Like, use Cloudflare worker or something to proxy your analytics script and it won't get blocked.
Just a thought, far from sure.
The process of building a credit history has been enlightening and frustrating. I'm in the tech world, as most people in this forum is as well. I make a pretty decent salary in said tech world. However, I qualify for zero unsecured credit cards. I also don't qualify for any small personal loans. I attempted to get both in order to build a credit history. I mean, I can't even get a personal loan for $500.
Nothing, nada, zilch. All I can do now is get a secured card and hold on to that for some time -- which is what I have been doing for about a year so far.
However, I am constantly, and I mean constantly flooded with emails with special "pre-approved" credit cards and personal loans. I applied for a couple and of course was rejected. Oh, and of course, when you apply for these "pre-approved" offers, they do a credit check, which for some reason has a negative impact on your credit score.
It's insane that we let 3 companies (Equifax, Experian, and Transunion) control so much of our lives, with little insight as to what their scores actually reflect. CreditKarma is just a vehicle within this sector. The entire system is broken and needs a complete overhaul.
> However, I qualify for zero unsecured credit cards.
That’s normal. You don’t live in the US so American banks have zero recourse if you decide to default.
For comparison, I had a very easy time getting 3 unsecured cards back when I was a 18 year old student with nearly zero income. It also helped that I had checking/savings accounts with the same banks and years of deposit history.
> they do a credit check, which for some reason has a negative impact on your credit score
You lose a few points, but hard pulls are the smallest component of your score. You can easily apply for 6 cards (2 per bureau) every 6 months before you start getting rejected. The “some reason” is obviously because people with many hard pulls are slightly more likely to default. IMO there’s no point complaining about losing 5 points from hard pulls when you’re losing 500 points because your AAoA (average age of accounts) is zero and no bank wants to take a leap of faith with someone they’ll never be able to put pressure on.
I'm American, and have no reason to believe the credit reporting services are aware of my physical location. This is evidenced by conversations I have had with various agencies (governmental, credit bureaus, etc.) over the past year.
> For comparison, I had a very easy time getting 3 unsecured cards back when I was a student with nearly zero income. It also helped that I had checking/savings accounts with the same banks and years of deposit history.
I've used the same primary bank for 20 years and counting.
So did you lie about your address on the credit card application? If not, that’s how the bank knows you don’t live in the US and that’s why you were rejected.
Lemme simply: Either you need credit history in the US or you need to live in the US. You fail both criteria. Maybe your rejection letter only mentions the first reason, but banks definitely issue cards (with very low limits like $2k) to students with zero history. Speaking from experience.
> same primary bank for 20 years
Then walk in there and apply for a card after you get back in the US.
> So did you lie about your address on the credit card application? If not, that’s how the bank knows you don’t live in the US and that’s why you were rejected.
I didn't lie on anything, and frankly a bit offended you would even assume such. I travel back and forth to the US, often. My home address (one of the properties my family owns, and where I lived my entire childhood) is the one I use on everything US related. It's my actual physical address in the US.
People can have multiple residences across countries. Is that "simple" enough to understand?
Is your name on any of the house items like utility bills, deeds, etc...? Where do you pay taxes? How do you pay for things while living outside the US? Are you employed by a US company?
Keep in mind the people you speak to on the phone have no idea what goes into the model. They mostly read the same score/rejection that you do. My guess is the model is picking up signals you aren't in the US and that's causing the rejection.
Not my intention. IMO my tone matches your first post re “The entire system is broken”.
> It's my actual physical address in the US.
Ah I wish you mentioned that. In that case I’m not sure why you’d be rejected by every bank. My understanding is that if you don’t get auto-approved based on your credit history the bank has to use its own homegrown risk assessment which is a lot more conservative. Maybe the internal tool instantly rejected the application because your IP address didn’t match your address? Try calling and asking them (not the front line CSR, but a credit analyst that can override the software):
https://www.doctorofcredit.com/credit-cards/credit-card-reco...
https://ficoforums.myfico.com/t5/Credit-Card-Applications/Ba...
I started with a blank credit folio late in life. This was not my experience. It may make sense for you to speak to your bank or to a financial advisor.
Edit: The rejection note that I normally receive is: insufficient credit history.
To me it's a catch-22 situation. It always boggles my mind when I see 20 somethings with 10s of thousands of dollars in credit card and loan debt, while I can't even get in the door. Not saying I plan on having any debt, just that I would like the opportunity to receive a loan when I want it.
Are you applying from outside America? Playing devil’s advocate, a college friend skipped paying a bunch of loans by emigrating outside the reach of collectors. It informs why creditors are wary about lending to international clients with whom they have no prior relationship. Hence the advice to work through your bank and financial advisor; they know you, and that relationship builds trust.
My working theory is that this case exists because they have no data to calculate and classify risk on you with.
No, when your credit history is non-existent, the free credit score sites will happily tell you it’s much higher than that (mine was reported as 720-740 when I lacked history), but you’ll still get auto-rejected for everything.
Interestingly, I emailed Arnold Kling, an economist writing about the subprime market at the time (2007) and he refused to believe that was happening, and insisted I must have some horrible default on my record. (I didn’t.)
A 500 credit score from a default is much better than having no history.
(I’m not the OP but was in a similar situation.)
Edit: ah, you’re the OP. Did you have that same issue, where sites would assure you you have a good credit score even as you keep getting rejected on any credit application?
[1] If they lean further on credit reports as a job applicant filter, that could turn into an even worse catch-22!
Have you ever defaulted on a debt or something similarly bad? If you haven't, have you checked your credit reports (from all 3) to make sure there isn't false/fraudulent info on there?
I decided to check my credit report, and noticed a default from like 5 years ago that had been sent to collections -- it was a paltry sum. Some years ago, I was in the US for a couple months for work, and got a monthly phone contract with a large mobile provider and paid for my device upfront. I EXPLICITLY chose electronic billing ONLY for the service, as I was based out of a hotel during the time.
So, when it was time to return to my country of residence, I went to the shop where I got the phone and service, and closed the account. All was well.
Fast forward 5 years, and it seems that the mobile provider had actually sent (via snail mail) a final bill to my hotel address. They didn't mention this to me when I closed the account IN PERSON. I had no idea this last bill even existed till I checked my credit report. So, since I had no other credit history -- this was the single line item on my credit report from all 3 reporting agencies.
I called the provider, pulled up my old contract (good thing I never delete emails), and proved to them that I had signed up for electronic bills only, thus they were in err. I paid the last bill, and they expunged it from my credit report. This all happened over a year ago. That negative item is no longer listed with any of the big 3.
So I don't know if this line item is still there but unlisted (I've checked my reports from all 3 in detail), and was told by them as well that the record is 100% gone, yet I still can't make any headway in loans or credit cards. The _only_ thing that makes sense is that I'm being flagged due to my physical address in the US -- high-crime, low-income inner city neighborhood.
Hmm, you may want to check if there are other public records with respect to this. That seems much more likely than redlining. (Also, credit card companies have been criticised both ways on this—for denying credit to such neighbourhoods as well as for flooding them with offers.)
It’s not, a lot of us have had credit cards and “bad” zip codes / addresses. You just don’t have verifiable W-2/1099 income.
Here's a fun read from DHH: https://twitter.com/dhh/status/1192540900393705474
One trick if you have family that trusts you is to have them add you as an authorized user. Then their multiple year old account history for that account will be part of your credit, bringing up the average age
Sorta. The most popular credit score (some version of FICO) ignores authorized user accounts so this doesn’t improve AAoA nor credit utilization. I guess too many people were taking advantage of this hack back in ~2012 lol.
I suspect it’s still useful for initializing a credit report so you don’t get stuck having to verify your identity/address and improves your odds with the bank’s internal risk assessment.
If you could buy a car with cash, take out a auto loan at any interest rate. Pay off the entire balance except $1. You’ll have no balance due each month, but each payment will be recorded as having been made on time. Then pay off the last $1 in the last month.
Double check to whether this actually works, I haven’t done it and I’m just regurgitating something I saw in Reddit. Also make sure there’s no sort of prepayment penalty on the loan.
The second is close to true, but you should actually leave a little over one month's payment, not $1. This SE answer explains it better than I ever could: https://money.stackexchange.com/a/59311 (ignore the "Accepted" answer which contains awful advice).
Yep. I love how the accepted answer with 130 votes totally ignores how credit scores work. I suppose it would be excellent advice if the OP never intends to get a home/car/cards and is too mentally impaired to handle a $1 loan.
My gut says that having two of the same age wouldn't be much/any better than one, but then again it's the credit industry and my intuition has bitten me in the past.
There are two types of debt (for the purposes of your credit score): revolving (you regularly borrow money and pay it back, like a credit card) and fixed (you borrow a lump sum and make regular payments).
Just having any type of fixed debt at all (car loan, mortgage, even a personal loan) is a huge boost to your score. Thus, a second car loan will make much less of an impact because OP would already be getting this boost from their first loan. (Similarly, having any type of revolving debt at all provides a boost, so for anybody new to the credit score game try to get any shitty credit card that will approve yoy and buy at least one thing with it each statement).
On top of that, getting approved for a second car loan (at the same time) is wayyyy harder than the first. I have no idea why this is, as the economics should be the same, but maybe lenders have some data that shows people with two car loans are more likely to default or something.
I generally wouldn't recommend this strategy to OP unless they were already going to buy a second car for a spouse/family member/etc. Cars depreciate very quickly even if you don't use them at all and the score boost won't be very big.
But it's not like similar industries.
It's the industry of treating you like shit. You are biomass to them, they want 20% interest while paying 1% interest (like two years ago), you can't compare saying it's a 19% spread what it is is the 18th power of the interest they pay. That's very abnormal historically, most usurers in the Middle Ages getting the whole town to kill them for their avarice had much skinnier spreads. 18th power is very unusual. Stretches out their time by a factor of 18. It's like street businesses, like crack dealing or pimping, which perpetually insult the people who are the foundation of their wealth.