U.S. Consumer Financial Protection Bureau (CFPB) recently concluded its investigation into BloomTech, formerly known as the Lambda School, and found that the coding bootcamp had deceived students about loan costs and made false claims about graduates’ hiring rates. The CFPB has now issued penalties against BloomTech and its CEO, Austen Allred, to rectify these deceptive practices.
Under the order, BloomTech is permanently banned from engaging in consumer lending activities, and Allred is prohibited from student lending for a period of 10 years. Additionally, BloomTech and Allred are required to stop collecting payments on loans for graduates who did not secure a qualifying job. Students will also be allowed to withdraw their funds without any penalties, and certain finance charges will be eliminated.
CFPB Director Rohit Chopra emphasized the agency’s focus on investigating individual executives and holding them accountable for breaking the law. He stated that BloomTech and Allred had promoted income share loans as risk-free when they actually carried significant finance charges and similar risks to other credit products.
To further ensure compliance, BloomTech and Allred must pay over $164,000 in civil penalties to the CFPB’s victims relief fund. BloomTech will contribute approximately $64,000, with Allred providing the remaining $100,000.
BloomTech, founded by Allred in 2017 and based in San Francisco, was previously known as the Lambda School before rebranding in 2022. The organization primarily operates as a vocational school and is backed by various venture capital funds and investors. At one point, it had a valuation of over $150 million.
Critics quickly criticized BloomTech’s business model, particularly its income share agreement (ISA), which they deemed predatory. The CFPB revealed that BloomTech had issued around 11,000 income-share loans to finance students’ tuition for short-term certification programs in fields like web development and data science. These loans required recipients earning over $50,000 in a related industry to pay 17% of their pre-tax income each month until reaching a 24-payment or $30,000 total repayment threshold.
BloomTech marketed these loans as not creating debt and being “risk-free.” They also advertised a job placement rate ranging from 71% to 86%. However, the CFPB discovered that these marketing claims were false. The loans indeed carried an annual percentage rate and an average finance charge of approximately $4,000, which students were unaware of. Additionally, a single missed payment triggered a default. The school’s actual job placement rates were closer to 50% and even dropped as low as 30%. Furthermore, BloomTech sold a portion of its loans to investors while depriving recipients of rights they should have had under the Holder Rule, a federal protection.
Prior to the CFPB order, BloomTech had faced previous lawsuits and allegations of misrepresentation. California’s oversight board had previously reprimanded the school for operating without approval. Leaked documents obtained by Business Insider last year raised concerns about BloomTech inflating its efficacy and overselling its curriculum.
To comply with the CFPB order, BloomTech must eliminate the finance charge for graduates who completed the program more than 18 months ago and obtained a qualifying job with a salary of $70,000 or less. Current students will have the option to withdraw from the program and cancel their loans or continue with a third-party loan.
This order by the CFPB serves as a significant step in holding coding bootcamps accountable for their practices and protecting the interests of students. It highlights the need for transparency and accurate representation in the education lending industry.