BloomTech Faces Allegations from CFPB for Deceptive Practices
The US Consumer Financial Protection Bureau (CFPB) has launched an enforcement action against BloomTech, formerly known as Lambda School, and its CEO Austen Allred. They stand accused of engaging in deceptive business practices, casting a shadow over the tech education sector. Key allegations include failing to disclose the true costs associated with its income share agreements (ISAs) and presenting overoptimistic employment outcomes for its graduates.
Since its inception in 2017, BloomTech has offered vocational training in high-demand areas such as computer technology, science, and engineering. These programs have been marketed as pathways to lucrative tech careers. However, the CFPB claims that BloomTech and Allred have misrepresented the financial risks tied to their programs.
BloomTech's ISAs, previously touted as virtually "risk-free", demanded students to allocate a portion of their future income towards loan repayment. The CFPB clarified that these agreements carried substantial finance charges, with the average finance charge hovering around $4,000. Moreover, some students found themselves obligated to pay upwards of $30,000 over the duration of their agreement.
The investigation also unveiled significant discrepancies in BloomTech's job placement rates. Despite publicly claiming that 71 to 86 percent of its graduates secured employment within six months post-graduation, internal reports hinted at a much bleaker reality, with job placement rates closer to 50 percent. A particularly bold claim of a 100 percent job-placement rate by CEO Allred for one cohort was debunked as it pertained to only one student.
These revelations raise critical questions about the transparency and fairness of coding bootcamps and similar tech-education platforms. Potential students and industry stakeholders await further developments as the CFPB continues its investigation.
Analyst comment
This news is negative for BloomTech and the tech education sector. The allegations from the CFPB regarding deceptive practices, such as failing to disclose true costs and presenting misleading employment outcomes, will cast a shadow over BloomTech’s reputation. This could lead to a decline in student enrollment and potential legal repercussions for the company. Other coding bootcamps and tech-education platforms may also face increased scrutiny, affecting the overall market.
