The U.S. Consumer Financial Protection Bureau (CFPB) has taken significant action against BloomTech, formerly known as Lambda School, and its CEO Austen Allred. The CFPB’s investigation concluded that BloomTech engaged in deceptive practices, falsely advertising the costs and benefits of their educational programs to students. The order issued by the bureau highlighted that BloomTech misled students regarding the price of loans, made fraudulent claims about graduates’ hiring rates, and engaged in illegal lending practices under the guise of “income sharing” agreements, which carried high fees.
As a consequence of these findings, the CFPB is imposing strict penalties on BloomTech and Allred. The sanctions include a permanent ban on BloomTech from any consumer lending activities, and a decade-long ban for its CEO, Austen Allred, from engaging in student lending. The penalties extend to mandated actions such as stopping the collection of payments on loans for graduates who did not secure a qualifying job, allowing students to withdraw their contributions without facing penalties, and eliminating finance charges for certain agreements.
The bureau’s director, Rohit Chopra, emphasized the misleading nature of BloomTech’s income share agreements, which were marketed as being risk-free but instead, harbored significant financial charges and shared similarities with other credit products in terms of risks. This action against BloomTech and Allred represents a broader initiative by the CFPB to focus on individual executives responsible for illegal activities, making them accountable for their actions.
In addition to operational restrictions, BloomTech and its CEO are required to pay over $164,000 in civil penalties, contributing to the agency’s victims relief fund. The breakdown of these payments consists of approximately $64,000 from BloomTech and the remaining $100,000 from Allred himself.
BloomTech, established in 2017 and experiencing a rebranding from Lambda School in 2022 following a significant reduction in staff, has been a controversial figure in the vocational training sector. Its business model, based on income share agreements, was once considered pioneering but soon faced criticism for being predatory. The CFPB’s findings revealed that BloomTech offered at least 11,000 of these loans, proposing a repayment model where students would contribute 17% of their pre-tax income each month after securing employment with an annual salary over $50,000, until they reached a cap on payments.
However, contrary to its marketing claims of being a debt-free and risk-free option, these agreements included undisclosed finance charges averaging around $4,000 and high APRs. Furthermore, BloomTech’s advertised job placement rates were significantly overstated, with actual figures being much lower than claimed. The school was also found to be selling a portion of its loans to investors, compromising the rights of loan recipients under federal protection known as the Holder Rule.
Prior to this order, BloomTech faced legal challenges and scrutiny over its operational legitimacy and claims regarding its graduates’ employment outcomes. There were allegations that the school’s representation of job placement rates and potential earnings were misleading, raising concerns about the effectiveness and integrity of its education programs.
In response to the CFPB order, BloomTech is now required to adjust its financial and operational practices significantly. This includes eliminating the finance charge for graduates who secured jobs paying $70,000 or less after completing the program more than 18 months ago. Additionally, current students are offered the option to withdraw from the program and cancel their loans or to continue their education funded through a third-party loan, steering clear of BloomTech’s controversial income share agreements. This marks a critical step by the CFPB in protecting students and holding educational institutions accountable for deceptive financial practices.
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