The Federal Trade Commission ordered consumer technology company Credit Karma Thursday to pay $3 million to redress false statements that made consumers believe they were preapproved for credit offers, a misrepresentation the FTC says wasted consumers' time and hurt credit scores. 

The $3 million will be sent to consumers who were harmed by the company’s actions from February 2018 to April 2021, according to a complaint from the FTC. 

Credit Karma on Thursday said it disagrees with the FTC's allegations "about marketing terms that aren’t even in use anymore" for a small subset of its offers but reached this agreement "to avoid disruption to our mission."

What happened? 

The FTC says Credit Karma falsely told consumers they were "preapproved" for credit offers or had 90% odds of approval from February 2018 to April 2021.

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In reality, nearly one-third of the "preapproved" offers resulted in denials. The only mention of the possibility of denial was buried in disclaimers or in false claims that there was a 90% chance of approval, the FTC said. 

The agency alleges Credit Karma knew its messaging was misleading but found consumers were more willing to click on offers that were preapproved.

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Does Credit Karma hurt your score?

The FTC's complaint alleges that "numerous consumers" applied for credit card offers after falsely believing they were preapproved.

The FTC said third-party financial companies would make a "hard inquiry" on their credit reports during the application process, which can lower credit scores and hurt their chances of securing other financial products.  

Credit Karma said it only gets paid when members are approved for advertised credit cards and personal loans on its platform and receives no compensation for denials.

Does Credit Karma charge a fee?

Credit Karma allows consumers to monitor their credit scores and credit reports. The service is free, but the FTC says users must share personal data such as credit and income information.

Credit Karma uses this data to send targeted advertisements and recommendations for products like credit cards. 

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What's next?

The FTC's proposed order prohibits Credit Karma from deceiving consumers about whether they are approved for a credit offer; imposes the $3 million fine and requires the company to preserve records "to help prevent further use of deceptive dark patterns."

The complaint did not say how many people were misled by the claims. A Credit Karma spokesperson told USA TODAY fewer than 1,500 have contacted the company with concerns related to the pre-approval claims and said the company was not able to independently verify the numbers cited in the FTC complaint.  

You can follow USA TODAY reporter Bailey Schulz on Twitter @bailey_schulz and subscribe to our free Daily Money newsletter here for personal finance tips and business news every Monday through Friday.