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

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

According to the FTC, loan Karma misled consumers by falsely claiming they were “pre-approved” for sure loan card offers that they did not actually qualify for.

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

FTC and loan 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 loan Karma’s misleading claims, customers wasted period applying for offers and incurred negative dings to their loan scores due to unnecessary checks and challenging inquiries.

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

“loan Karma’s untrue claims of ‘pre-approval’ expense consumers period and subjected them to unnecessary loan checks,” said Samuel Levine, Director of the FTC’s Bureau of customer Protection, in a 2022 statement. “The FTC will continue its crackdown on digital dim patterns that damage consumers and pollute online commerce.”

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

loan Karma did not immediately respond to request for comment.

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

“Any implication that loan Karma rejected consumers applying for loan cards is simply incorrect, as loan Karma is not a lender and does not make lending decisions,” the corporation said.

The corporation told CBS it had reached an agreement with FTC to “put the matter behind” loan Karma so that it can “maintain our focus on helping our members discover the monetary products that are correct for them.”

Who is getting payouts from the FTC?

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

Depending on what impacted customers chose at the period 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 settlement 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 procedure.

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