The Consumer Financial Protection Bureau and 11 states are suing the operator of a career boot camp for allegedly tricking students into signing income-share agreements they had to repay even if they didn't land a high-paying job.
Prehired, which filed for bankruptcy last year, promised graduates that they wouldn't need to repay their financial obligations until they landed high-paying jobs, the CFPB said in a lawsuit filed Thursday.
But the firm's contracts had buried phrasing that required repayment no matter the students' job status, and the company sued those whose loans went into default, according to the consumer agency.
"Prehired falsely pitched its purported training program as a risk-free investment, but instead often saddled its students with debt," CFPB Director Rohit Chopra said in a news release.
The development centers on a relatively new product — income-share agreements — that
Income-share agreements help students to finance education and job-training programs. Students agree to repay them by turning over some chunk of their income once they get a job.
The lawsuit, filed in federal bankruptcy court in Delaware, says Prehired offered a 12-week program that trained students for jobs as software sales development representatives. In 2019, Prehired's program cost $15,000, the lawsuit says, and the company prodded interested students who couldn't afford the tuition to finance the cost.
More than 1,000 students entered into income-share agreements with Prehired — arrangements that the CFPB says should be considered debt since they purchase a service and require repayment. Companies that offer consumer loans are required to make several disclosures, and they are subject to rules under the Truth in Lending Act.
Prehired did not respond to a request for comment.
The company's website stated that its "members only start paying dues only AFTER they land a $60k+ job," according to the lawsuit. But its contracts contained language requiring repayment once borrowers' income was about $40,000 a year, or $30,000 for those who did not complete a career search process, according to the CFPB.
The contracts also forced students to accept any "bona fide offer," the lawsuit says, and stated that students could not wait for their "'dream' offer."
The company also "often filed debt collection lawsuits in a jurisdiction far away from where the consumers lived," the lawsuit says.
Within the span of a few weeks in 2022, Prehired sued consumers more than 280 times for loans that it said were in default. Officials in Delaware, where the lawsuits were filed, expressed concern shortly after, saying that almost all the consumers lived outside the state and could not defend themselves.
In a press release, Delaware Attorney General Kathy Jennings said her office has been seeking to ensure that consumers have "the opportunity to defend themselves against overreaching creditors." The lawsuit is "another major step forward for the students and consumers whom Prehired preyed upon," Jennings said.
The attorneys general from 10 states, including Delaware, joined the lawsuit, as did the California Department of Financial Protection and Innovation.
