The Consumer Financial Protection Bureau yesterday announced an enforcement action against a for-profit vocational school accused of deceiving students about the cost of loans and making false claims about post-graduation hiring rates. The company has been banned from consumer lending and the owner has received a 10-year ban from student lending activities and both must pay $164,000 in civil penalties.
The Who: BloomTech is the name of the school, which was originally founded as the Lambda School back in 2017. Austen Allred is the company’s chief executive.
- BloomTech operates short-term training programs in areas like web development and data science. It claimed to offer students income share loans, which required students who earn more than $50,000 in a related field to pay 17% of their pre-tax income each month back to the company until they make 24 payments or pay $30,000.
The What: BloomTech and Allred claimed the agreements were not loans, did not create debt, did not carry a finance charge, and were risk free. But the loans had an average finance charge of $4,000 and a single missed payment would trigger a default and immediate payment of the $30,000.
- The company also claimed that it didn’t get paid until its students did, but in fact it was selling the loans to investors and thus getting paid long before students finished the program and started earning a salary.
- The company advertised job-placement rates as high as 86% when it fact it was closer to 50%. It once tweeted that the school achieved a 100% placement rate for one of its cohorts, only to later acknowledge that the sample size was one student.
The Penalty: BloomTech and Allred must cease collecting payments from graduates who did not have a qualifying job in the past year, amend its contracts to eliminate the finance charge for consumers who graduated more than 18 months ago and obtained a qualifying job making $70,000 or less, allow students to withdraw without facing any financial penalty, and pay $164,000 in fines.
