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Consumer Financial Protection Bureau Fines BloomTech for False Claims Made to Consumers

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Introduction

In a shocking turn of events, the U.S. Consumer Financial Protection Bureau (CFPB) has issued an order against BloomTech, a for-profit coding bootcamp formerly known as the Lambda School, for engaging in deceptive practices and making false claims about graduates’ hiring rates. The CFPB’s investigation found that BloomTech deceived students about the cost of loans, made false marketing claims, and engaged in illegal lending masked as "income sharing" agreements with high fees.

Background

BloomTech was founded by Austen Allred in 2017 and rebranded from the Lambda School in 2022 after cutting half its staff. The vocational organization is owned primarily by Allred but 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.

Critics almost immediately attacked the firm’s business model, which relied on "income share agreements" (ISAs). These loans required students to pay 17% of their pre-tax income each month until reaching a repayment threshold or a total amount of $30,000. BloomTech marketed these loans as "risk-free," but they carried an annual percentage rate and an average finance charge of around $4,000, which students were not made aware of.

The CFPB’s Investigation

The CFPB’s investigation found that BloomTech deceived students about the cost of loans and made false marketing claims. Specifically:

  • Deceptive loan practices: BloomTech marketed ISAs as "risk-free," but in reality, they carried significant finance charges and many of the same risks as other credit products.
  • False marketing claims: The company claimed a job placement rate of 71% to 86%, but this was patently false. In fact, the school’s job placement rates were closer to 50% and sank as low as 30%.
  • Income sharing agreements (ISAs): BloomTech required students to pay 17% of their pre-tax income each month until reaching a repayment threshold or total amount of $30,000.

Penalties and Consequences

The CFPB’s order marks the end of its investigation into BloomTech’s practices. The company faces significant penalties and consequences, including:

  • Fines: BloomTech will have to pay fines for engaging in deceptive loan practices and making false marketing claims.
  • Repayment plans: Students who took out ISAs with BloomTech may be eligible for repayment plans or refunds.
  • Regulatory scrutiny: The CFPB’s investigation highlights the need for regulatory scrutiny of coding bootcamps and other vocational organizations.

Impact on the Education Industry

The CFPB’s order against BloomTech has significant implications for the education industry. It raises questions about the ethics and practices of coding bootcamps and other vocational organizations. As a result, there may be increased regulatory scrutiny and calls for greater transparency and accountability in the industry.

Conclusion

In conclusion, the CFPB’s investigation into BloomTech’s practices highlights the need for greater transparency and accountability in the education industry. The company’s deceptive loan practices and false marketing claims have significant consequences for students and the broader industry. As a result, regulatory scrutiny is likely to increase, and coding bootcamps and other vocational organizations will be under pressure to reform their practices.

What’s Next?

In the coming weeks and months, we can expect to see increased regulatory scrutiny of coding bootcamps and other vocational organizations. This may lead to changes in industry practices and greater transparency for students. The CFPB’s order against BloomTech serves as a warning to companies operating in this space that they must prioritize ethics and accountability.

Sources

  • [1] Consumer Financial Protection Bureau (CFPB)
  • [2] BloomTech
  • [3] Lambda School

Related News Articles

  • "CFPB Cracks Down on Coding Bootcamps with Deceptive Practices"
  • "BloomTech’s Rebranding Efforts Spark Controversy Amid CFPB Investigation"

These articles provide additional context and insights into the CFPB’s investigation and BloomTech’s practices. They highlight the need for regulatory scrutiny and accountability in the education industry.

Further Reading

If you’re interested in learning more about the CFPB’s investigation and BloomTech’s practices, we recommend checking out these resources:

  • CFPB’s Investigation into Deceptive Practices by Coding Bootcamps
  • BloomTech’s Response to CFPB Investigation

These resources provide a comprehensive overview of the investigation and BloomTech’s response. They offer valuable insights into the issues surrounding coding bootcamps and vocational organizations.

Contact Information

For more information or to schedule an interview, please contact:

Kyle Wiggers
Senior Reporter, Enterprise
kyle.l.wiggers@techcrunch.com

Disclaimer

This article is for informational purposes only and does not constitute investment advice. Readers should consult with a financial advisor or professional before making any investment decisions.

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We hope you found this article informative and helpful in understanding the CFPB’s investigation into BloomTech’s practices. If you have any questions or would like to schedule an interview, please don’t hesitate to contact us.