This coding boot camp offered an alternative to student loans. It was a sham, regulators say.

By Jillian Berman

The Consumer Financial Protection Bureau found that BloomTech misled prospective students with its revenue-sharing agreements.

Take these classes and land a job at a big company without student debt, they were told. But the promise turned out to be too good to be true, regulators say.

The Consumer Financial Protection Bureau found that BloomTech, a San Francisco-based company offering short-term training programs in web development, data science and more, misled prospective students, the Consumer Financial Protection Bureau said. agency Wednesday. In court documents, the CFPB said BloomTech misrepresented the financing product it advertised to students to pay for tuition and exaggerated the company's ability to help them land jobs after completing the programs BloomTech.

Under an agreement, known as a consent order, BloomTech will pay $64,235 in penalties while Austen Allred, the company's CEO, will pay $100,000. BloomTech is permanently banned from consumer lending and Allred is banned from student lending activities for 10 years. The business will still be able to operate, but students will have to rely on third-party lenders to finance their tuition or pay upfront.

The agreement comes after years of allegations in lawsuits and media that BloomTech, formerly known as Lambda School, misled students about its job placement rates and the nature of its funding program. The consent order also marks a change in fortunes for the company, which was the darling of Silicon Valley.

“This is long overdue, but it is nonetheless an extremely important step taken by the CFPB,” said Ben Kaufman, a researcher at the Student Borrower Protection Center, an advocacy group. “This should be a sign that the scammers of the boot camp world need to be prepared to face the consequences.”

In a statement posted to X, Allred said the company entered into the settlement with the CFPB “without accepting or denying any of the allegations contained in the consent order.”

“We decided to settle the case because it was clear that ongoing litigation would be extremely time consuming, incredibly costly, and would distract us from our core mission,” Allred wrote.

“BloomTech continues to focus on its core mission: improving the lives of students and enabling them to realize their economic potential. Although it has been frustrating, we are happy to put this behind us,” he added.

Last in a battle over ISAs

The order is the latest salvo in a battle between consumer advocates, regulators, technology companies and some educational institutions over revenue sharing agreements, or ISAs. Originally dreamed up by libertarian economist Milton Friedman, these agreements allow students to pay nothing up front and then repay their tuition as a percentage of their income after leaving school.

ISAs took off in the middle of the last decade, with coding boot camps and some traditional four-year colleges touting them as a new financing mechanism that would help students avoid debt and revolutionize the way they pay their studies. But they struggled to live up to the hype; some large ISA programs have failed and others have faced regulatory scrutiny.

All along, consumer advocates have said ISAs are just debt by another name. In recent years, the CFPB, which oversees consumer credit products, has repeatedly said it agrees.

In BloomTech's case, the bureau said the company violated consumer lending laws in the way it presented its ISAs to students.

BloomTech sought to sell its education to people with “non-traditional life circumstances” who might have difficulty paying for its courses upfront, according to internal documents cited in the consent order. The company announced that students could enroll in its training programs without incurring student debt and “graduate risk-free.”

The idea was that if students earned at least $50,000 after graduating from BloomTech programs, they would pay 17% of their pre-tax income each month until they made 24 payments, according to court documents. BloomTech ISAs had a payment limit of $30,000; former students who earned less than $50,000 did not have to pay. BloomTech created more than 11,000 ISAs between 2017 and 2023, according to the CFPB.

The $30,000 cap was often $10,000 more than BloomTech's advertised price for its six- to nine-month programs, according to the CFPB. If the students failed to comply with the agreement, the $30,000 would be due immediately.

For most years between 2017 and 2022, BloomTech said students who choose to pay their tuition in advance will pay $20,000. On average, students who completed their ISA ended up paying around $24,000, according to the CFPB. That $4,000 difference constitutes a financial burden, the agency said.

All of this meant that BloomTech ISAs were actually loans, governed by certain regulations, according to the CFPB. BloomTech failed to disclose some of the necessary product information under these regulations, the CFPB said, and misled students about the nature of ISAs by presenting them as something other than a loan. In 2024, the company stopped issuing ISAs, according to the CFPB, and since 2021 it has been steering students to other lenders to finance their tuition costs.

Additionally, BloomTech told students that its interests were aligned with theirs, according to the CFPB: They would only be paid if the students landed decent jobs. In reality, BloomTech sold numerous ISAs to investors and received upfront fees, meaning they were paid regardless of whether students passed, the CFPB found.

The company also touted placement rates that were higher than executives thought they could reasonably achieve, according to the CFPB. At one point, Allred tweeted that the placement rate for one of BloomTech's courses was 100%, but privately acknowledged that he was using a sample of one student, according to the CFPB. On social media, BloomTech advertised placement rates above 70%, while showing investors placement rates that were consistently around 50%.

As part of the consent order, BloomTech agreed to stop collecting any additional payments from former students who entered into income-sharing agreements and who did not have qualifying employment in the past year. The order also waives finance charges on income-sharing agreements for students who graduated more than 18 months ago and obtained a job earning $70,000 or less.

These provisions not only benefit BloomTech alumni, but could have implications for the future of the ISA industry, said Kaufman of the Student Borrower Protection Center.

“The ISAs that we have always considered unenforceable could be made more clearly so,” he said. “This could be a huge win for borrowers.”

-Jillian Berman

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04/18/24 1:33 p.m. ET

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