This coding boot camp offered an alternative to student loans. It was a sham, regulators say.

By Jillian Berman

The Consumer Financial Protection Bureau found that BloomTech misled prospective students with its income-share agreements

Take these courses and land a job at a top company with no student debt, they were told. But the promise turned out to be too good to be true, according to regulators.

The Consumer Financial Protection Bureau found that BloomTech, a San Francisco-based company offering short-term training programs in web development, data science and more, misled prospective students, the agency announced Wednesday. In court documents, the CFPB said BloomTech misrepresented the financing product it advertised to students to pay for tuition, and exaggerated the company's ability to help them land jobs after completing BloomTech programs.

As part of a deal, known as a consent order, BloomTech will pay $64,235 in penalties while Austen Allred, the company's chief executive officer, will pay $100,000. BloomTech is banned from consumer lending permanently and Allred is banned from student-lending activities for 10 years. The company will still be able to operate, but students will have to use third-party lenders to finance their tuition or pay up front.

The deal comes after years of allegations in lawsuits and the media that BloomTech, formerly known as Lambda School, misled students about its job-placement rates and the nature of its financing program. The consent order also marks a change in fortune for the company, which has been a darling of Silicon Valley.

"It's long overdue, but nevertheless it is an extremely important action that the CFPB took," said Ben Kaufman, a fellow at the Student Borrower Protection Center, an advocacy group. "It should be a sign that scammers across the boot-camp world should be ready to face consequences."

In a statement posted on X, Allred said the company made the deal with the CFPB "without agreeing to or denying any of the allegations in the consent order."

"We decided to settle the matter because it was clear that ongoing litigation would be extremely time consuming, incredibly expensive, and distract us from our core mission," Allred wrote.

"BloomTech continues to focus on its core mission: improving the lives of students and enabling them to fulfill their economic potential. While it's been frustrating, we're glad to put this behind us," he added.

Latest in a battle over ISAs

The order is the latest salvo in a battle between consumer advocates, regulators, tech companies and some educational institutions over income-share agreements, or ISAs. Originally envisioned by libertarian economist Milton Friedman, these deals allow students to pay nothing up front and then repay their tuition as a percentage of their income after they leave school.

ISAs took off in the middle of the last decade, with coding boot camps and some traditional four-year colleges touting them as a new financing mechanism that would help students avoid debt and revolutionize the way they pay for school. But they struggled to live up to the hype; some major ISA programs have petered out and others have faced regulatory scrutiny.

All along, consumer advocates have said ISAs are just debt by another name. Over the past few years, the CFPB, which oversees consumer-lending products, has said multiple times that it agrees.

In BloomTech's case, the bureau said the company violated consumer-lending laws in the way that it pitched its ISAs to students.

BloomTech sought to sell its education to people with "nontraditional life circumstances" who might struggle to pay for its courses up front, according to the internal documents cited in the consent order. The company advertised that students would be able to enroll in its training programs without taking on student debt and "graduate risk-free."

The idea was that if students made at least $50,000 after graduating from BloomTech programs, they would pay 17% of their pretax income each month until they made 24 payments, according to the court documents. BloomTech's ISAs had a payment cap of $30,000; former students who earned less than $50,000 didn't have to pay. BloomTech originated more than 11,000 ISAs between 2017 and 2023, according to the CFPB.

The $30,000 cap was often $10,000 more than the sticker price BloomTech advertised for its six- to nine-month programs, according to the CFPB. If students defaulted on the agreement, the $30,000 would come due immediately.

For most of the years between 2017 and 2022, BloomTech said that students who chose to pay its tuition up front would pay $20,000. On average, students who completed their ISAs wound up paying about $24,000, according to the CFPB. That $4,000 difference constitutes a finance charge, the agency said.

All of this meant that BloomTech's ISAs were actually loans, governed by certain regulations, according to the CFPB. BloomTech failed to make some of the necessary disclosures about the products under those regulations, the CFPB said, and misled students about the nature of the ISAs by advertising them as something other than a loan. In 2024, the company stopped originating ISAs, according to the CFPB, and since 2021, it has referred students to other lenders to finance their tuition.

In addition, BloomTech told students its interests were aligned with theirs, according to the CFPB - that they didn't get paid unless students landed a decent job. In reality, BloomTech sold many ISAs to investors and received an up-front fee, meaning they got paid regardless of whether students were successful, the CFPB found.

The company also touted higher job-placement rates than what executives knew they could reasonably achieve, according to the CFPB. At one point, Allred tweeted that the job-placement rate for one of BloomTech's classes was 100%, but acknowledged privately that he was using a sample size of one student, according to the CFPB. On social media, BloomTech would advertise job-placement rates of more than 70%, yet showed investors job-placement rates that were consistently around 50%.

As part of the consent order, BloomTech agreed to stop collecting on any additional payments from former students with income-share agreements who didn't have a qualifying job in the last year. The order also gets rid of the finance charge on income-share agreements for students who graduated more than 18 months ago and received a job earning $70,000 or less.

Those provisions not only benefit former BloomTech students, but could have implications for the future of the ISA industry, the Student Borrower Protection Center's Kaufman said.

"ISAs that we've always thought were unenforceable may be more clearly unenforceable," he said. "That could be a really huge win for borrowers."

-Jillian Berman

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04-18-24 1333ET

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