The Consumer Financial Protection Bureau continues to expand its presence into different businesses, including for-profit colleges. On April 17, 2024, the CFPB issued a consent order against a for-profit college for computer programming. According to the consent order, the school “offers training programs in areas such as web development, data science, and backend engineering that typically last six to nine months.” The consent order marks at the least the second time in which the Bureau has issued a consent order related to “income share agreements,” and continues the Bureau’s recent focus on for-profit educational institutions.

What You Need to Know:

• The CFPB issued a consent order against a for-profit vocational school designed for computer programming.
• The Bureau alleged the school misrepresented its income share agreements were not loans, misrepresented job placement rates to lure students to sign up, and misrepresented to its students that its interests were aligned with theirs.
• The school is banned from originating or purchasing student loans for ten years, and must pay $164,000 in penalties. 

The Bureau found that the school engaged in deceptive practices with respect to the nature of the financing agreements with students, misrepresented future job prospects, misrepresented its own financial interests in the student debt, and failed to follow the FTC’s Holder Rule with respect to financing provided to its students. The Bureau is forcing the school to cease collections on some graduates, amend the financing contracts, allow students to withdraw without penalty, and pay a $164,000 penalty. The Bureau has also banned the school from engaging in student lending activities for ten years, though it may still receive funds from third-party lenders. 

According to the consent order, the school offered low-income prospective students the opportunity to attend its programs with financing through an income share agreement. The income share agreement required students to pay the school a portion of their future income, up to a maximum amount, and according to the Bureau, a majority of the school’s students between 2017 and 2022 utilized this program. If a student’s income was less than $50,000 per year in any given month, then the student was not required to pay; if a student earned more than $50,000 per year in any given month, then the student was required to pay 17 percent of pre-tax income, with a cap of $30,000. Importantly, that $30,000 cap was up to $10,000 more than the cost to attend the school. 

While the school marketed the income share agreements as not being loans or debt, and that they carried no finance charge, the Bureau alleged that they were indeed loans:

• The Bureau alleged the agreements carried an average finance charge of $4,000;
• The Bureau alleged that a single missed payment triggered default, requiring the remainder to be due immediately, and that the contract may be sent to collection; 
• The school furnishes negative credit reporting information on defaulted students; and
• The Bureau alleged the school did not disclose any of these terms properly under the Truth in Lending Act and its implementing regulation, Regulation Z.

Because the Bureau found the income share agreements to be loans, it found that they were subject to the FTC’s Holder Rule , 16 C.F.R. § 433.1 et seq., which requires certain language to be included in consumer loan documents and preserves certain defenses against subsequent holders of the loans. This finding also informs another finding of the Bureau—that the school misrepresented its interests in the income share agreements. The Bureau alleged that the school failed to inform students that it sold the income share agreements to investors, and often got paid regardless of whether the students found employment. Instead, the Bureau alleged that the school misrepresented to the students that the income share agreements aligned the school’s interests with those of its students. 

Finally, the Bureau found that the school misrepresented employment prospects to its students. The Bureau alleged that the school used logos in its advertisements implying that well-known tech companies such as Google and Amazon, hire the school’s graduates. But in fact, such companies rarely hired its graduates. The Bureau also alleged that the school inflated its job placement rates, advertising that up to 86 percent of its graduates found jobs within six months of graduation, but its reporting to investors showed placement rates closer to 50 percent. The Bureau also cited an example where the CEO publicized a 100 percent placement rate for one of its classes, but that this class consisted of one person. 

This consent order continues a recent focus on both income share agreements and for-profit educational institutions by the Bureau. In 2021 and 2023, the Bureau issued consent orders against income share providers for similar allegations of deceptive practices, particularly with respect to misrepresentations on the nature of the product. The Bureau has made public statements about its focus on for-profit educational institutions throughout current-Director Chopra’s tenure, including a report in September 2023 titled “Tuition Payment Plans in Higher Education.”