On April 17, the Consumer Financial Protection Bureau (CFPB or Bureau) entered a consent order against BloomTech, a for-profit vocational school, and its CEO, Austen Allred, for deceptive marketing practices related to income-share agreements (ISAs). The CFPB found that BloomTech and Allred misled students about the nature and cost of their ISAs and made false claims about job-placement rates for graduates. The CFPB’s action highlights the Bureau’s ongoing scrutiny of ISAs, including the Bureau’s classification of ISAs as loans, and the Bureau’s concern that consumers may not fully understand the true cost of their educations if they use ISAs.

BloomTech — previously branded as Lambda — offers short-term training programs in areas such as web development, data science, and backend engineering. To attract students who may not be able to pay the upfront tuition, BloomTech offered ISAs as a financing option. Unlike conventional student loans, ISAs allow students to finance tuition by agreeing to pay a predetermined share of their future income, if their income exceeds a minimum threshold. California’s Department of Financial Protection and Innovation and Bureau of Private Postsecondary Education each previously required BloomTech to comply with California law related to its ISA and educational programs.

Since 2017, BloomTech originated at least 11,000 income share loans, with most students funding their tuition with ISAs. Under these agreements, students who earn more than $50,000 in a related field must pay BloomTech 17% of their pre-tax income each month until they make 24 payments or hit a “cap” of $30,000 in total payments.

According to the consent order, BloomTech and Allred made misleading statements about its ISAs and the benefits students would receive. The school told students that its ISA was not a loan, did not create debt, carried no finance charge, and was risk-free. However, the CFPB alleges that these claims are misleading. For example, the agreements have an average finance charge of $4,000 and a single missed payment triggers a default whereby the remainder of the $30,000 “cap” becomes due immediately.

BloomTech and Allred also allegedly lured prospective enrollees with inflated promises of job-placement rates as high as 86% and used the names and logos of large technology companies to attract students. In fact, the company’s internal metrics showed placement rates closer to 50% and in some cases as low as 30%.

It was further found that BloomTech violated the Holder Rule, by failing to include a required provision making any owner of the contract subject to the legal claims and defenses that students could assert against BloomTech. Students were therefore deprived of rights they should have had when their ISAs were sold to an investor.

The consent order provides that BloomTech and Allred are:

• Permanently banned from all consumer-lending activities and Allred is banned from any student-lending activities for ten years.
• Ordered to cease collecting payments on ISAs for graduates who did not have a qualifying job in the past year.
• Ordered to eliminate finance charges for students who graduated the program more than 18 months ago and obtained a qualifying job making $70,000 or less.
• Allow current students the option to withdraw without penalty.
• Pay over $164,000 in civil penalties, which will be deposited in the CFPB’s victims relief fund.