More than 50,000 Credit Karma customers will soon receive checks or PayPal payments as part of a $2.5 million Federal Trade Commission payout.

The FTC first took action in 2020 against Credit Karma, the credit-monitoring and finance app acquired in 2020 by financial software giant Intuit. The FTC accused the service of misleading consumers with promises of credit card pre-approvals.

According to the FTC, Credit Karma misled consumers by falsely claiming they were "pre-approved" for certain credit card offers that they did not actually qualify for.

Credit Karma ultimately agreed to stop making those claims and to pay $3 million to compensate customers who the FTC said were deceived into wasting time and potentially harming their credit scores. On Thursday, the FTC announced that more than $2.5 million would be distributed among 50,994 customers.

FTC and Credit Karma settlement

Between February 2018 to April 2021, roughly one-third of consumers who applied for "pre-approved" offers were ultimately denied, according to the FTC action announced in September 2022. The complaint alleged that because of Credit Karma's misleading claims, customers wasted time applying for offers and incurred negative dings to their credit scores due to unnecessary checks and hard inquiries.

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The FTC alleged that Credit Karma buried disclaimers in fine print or falsely claimed consumers had “90% odds” of approval. It also said that the company was aware of the deception, citing training materials that allegedly told new employees how to deal with the common customer complaint of being denied for a "pre-approved" offer.

“Credit Karma’s false claims of ‘pre-approval’ cost consumers time and subjected them to unnecessary credit checks,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in a 2022 statement. “The FTC will continue its crackdown on digital dark patterns that harm consumers and pollute online commerce.”

As part of the agreement between the company and FTC, Credit Karma not only had to pay $3 million but was also prohibited from duping customers about pre-approval or approval odds moving forward. The company was also required to preserve relevant records to "help prevent further use of deceptive dark patterns."

Credit Karma did not immediately respond to request for comment.

The company previously told CBS MoneyWatch in a statement that they "fundamentally disagree with allegations the FTC makes in their complaint, which relate solely to statements we ceased making years ago."

"Any implication that Credit Karma rejected consumers applying for credit cards is simply incorrect, as Credit Karma is not a lender and does not make lending decisions," the company said.

The company told CBS it had reached an agreement with FTC to "put the matter behind" Credit Karma so that it can "maintain our focus on helping our members find the financial products that are right for them."

Who is getting payouts from the FTC?

On Thursday, the FTC announced that $2.5 million will be distributed to 50,994 Credit Karma customers who filed a valid claim for reimbursement before the March 4, 2024 deadline.

Depending on what impacted customers chose at the time of filing, they will receive payments in the mail or digitally via their PayPal accounts. Checks must be cashed within 90 days and PayPal payments must be accepted within 30 days.

Consumers who have questions about their payment should contact the administrator, JND Legal Administration, at 866-848-0871, or visit the FTC’s website to view frequently asked questions about the refund process.

The FTC noted that it never requires payment or sensitive information, like bank account or Social Security numbers, to distribute payments. If someone claiming to be from the FTC asks for such things, it is a scam, warns the agency.