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  • Frank Tian

💯 Preapproved? Not Really.

When I started to work in the US market in 2015, it took me a while to figure out that a preapproval does not necessarily mean you will be approved.

Unlike in Canada where preapproved means a firm offer, American consumers still have to go through underwriting once they accept the preapproved offer.

In the US, “preapproved” is essentially “prequalified” or “prescreened”. It means the lender is willing to lend based on initial screening, but pending further information from the application.

The key is the lender has analyzed the consumer credit profile against its own credit policy beforehand.

However, for a non-lender, the usage of preapproval needs to be careful. FTC’s recent $3 million fine of Credit Karma illustrates this.

What Happened?

👉 From Feb ‘18 to Apr ‘21, Credit Karma used Preapproved because its experiment showed that “Preapproved” had a better click-to-apply rate vs. “Excellent” chance of being approved.

👉 In fact almost 1/3 applicants got declined, although the buried disclaimer stated 90% odds of approval.

FTC’s recent focus is on so-called digital dark patterns that mislead consumers and benefit the business.

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