BloomTech Slammed with Fines by Consumer Financial Protection Bureau for Deceptive Claims

The CFPB is permanently banning BloomTech from consumer lending activities and its CEO, Austen Allred, from student lending for a period of ten years. Allred founded BloomTech, which rebranded from the Lambda School in 2022 after cutting half its staff, in 2017. (According to the CFPB, BloomTech originated “at least” 11,000 such loans.) BloomTech didn’t market the loans as such, saying that they didn’t create debt and were “risk free,” and advertised a 71%-86% job placement rate. And, unbeknownst to many students, BloomTech was selling a portion of its loans to investors while depriving recipients of rights they should’ve had under a federal protection known as the Holder Rule.

The U.S. Consumer Financial Protection Bureau (CFPB) has concluded its investigation into BloomTech, previously known as the Lambda School, and has issued an order detailing the organization’s deceptive and illegal practices. The CFPB has banned BloomTech from consumer lending activities and its CEO, Austen Allred, from student lending for ten years. The agency is also ordering BloomTech and Allred to stop collecting payments from students who did not secure employment after graduation and to allow students to withdraw their funds without penalty, as well as eliminate finance charges for certain agreements.

Today, the CFPB issued an order against BloomTech and its CEO, Austin Allred, for deceiving students about the cost of loans and making false claims about graduates’ hiring rates. – (@CFPB) April 17, 2024

CFPB director Rohit Chopra stated, “BloomTech and its CEO sought to drive students towards income share loans that were marketed as risk-free, but in reality, carried significant finance charges and risks similar to other credit products. This action serves as a reminder that we will hold individual executives accountable for breaking the law.”

In addition to the ban, BloomTech and Allred are required to pay over $164,000 in civil penalties to the CFPB’s victim relief fund. BloomTech will contribute roughly $64,000 while Allred will pay the remaining amount of $100,000.

Allred founded BloomTech (formerly Lambda School) in 2017 and rebranded it in 2022 after laying off half of its staff. The San Francisco-based vocational organization, primarily owned by Allred, is backed by various VC funds and investors, including Gigafund, Tandem Fund, Y Combinator, GV, GGV, and Stripe. At one point, it was valued at over $150 million. However, critics quickly condemned its pioneering business model – the income share agreement (ISA) – as predatory.

For its short-term coding bootcamp programs in areas such as web development, data science, and backend engineering, BloomTech originated income-share loans to cover tuition costs. According to the CFPB, the organization has originated at least 11,000 such loans. These loans required graduates earning more than $50,000 in a related industry to pay 17% of their pre-tax income each month until they reached a total repayment of $30,000 or after 24 payments. However, BloomTech marketed these loans as “risk-free” and avoided mentioning the associated finance charges, with advertised job placement rates ranging from 71%-86%. The CFPB’s investigation revealed these claims to be false.

BloomTech’s loans actually carried an annual percentage rate and an average finance charge of approximately $4,000. Additionally, a single missed payment resulted in default. The school’s job placement rates were also much lower, with some as low as 30%. Furthermore, many students were unaware that BloomTech was selling a portion of their loans to investors, therefore depriving them of rights under the Holder Rule.

Prior to the CFPB’s order, BloomTech encountered other lawsuits, with claims that the school misrepresented graduates’ job prospects and projected earnings. Last year, leaked documents obtained by Business Insider raised concerns about the company’s inflated statistics and curriculum that did not adequately upskill students as promised.

To comply with the CFPB’s order, BloomTech must stop collecting payments from graduates who did not secure a qualifying job in the past year, and cancel finance charges for those who graduated over 18 months ago and obtained a job making less than $70,000. The organization must also allow current students to withdraw from the program and cancel their loans or continue with a third-party loan.

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Max Chen

Max Chen is an AI expert and journalist with a focus on the ethical and societal implications of emerging technologies. He has a background in computer science and is known for his clear and concise writing on complex technical topics. He has also written extensively on the potential risks and benefits of AI, and is a frequent speaker on the subject at industry conferences and events.

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