State Partners and CFPB Sue Prehired For Illegal Student Lending Practices
Education outfit induced borrowers to take on debt based on false promises about jobs and income, engaged in bait-and-switch tactics on “income-share” loans
Today, the Consumer Financial Protection Bureau (CFPB) joined with several state attorneys general and a state regulator to take action against Prehired for deceptive marketing and debt collection practices. Prehired operated a 12-week online training program claiming to prepare consumers for entry-level positions as software sales development representatives with “six-figure salaries” and a “job guarantee.” Prehired drove interested applicants to sign an “income share” loan to finance the costs of the program and represented that consumers would pay nothing until they got a high-income job through Prehired. In reality, Prehired deceptively buried terms that required consumers to pay even if they never got a job and, in many cases, unilaterally increased consumers’ required minimum monthly payments without any evidence that they had secured employment or experienced an increase in income. The CFPB is seeking to void the loans and obtain redress for affected consumers and a penalty, which would be deposited into the CFPB’s victims relief fund. The attorneys general from Washington, Oregon, Delaware, Minnesota, Illinois, Wisconsin, Massachusetts, North Carolina, South Carolina, and Virginia joined the action, along with California’s Department of Financial Protection and Innovation.
“Prehired falsely pitched its purported training program as a risk-free investment, but instead often saddled its students with debt,” said CFPB Director Rohit Chopra. “The CFPB is joining with the states to void these loans obtained through illegal student lending practices.”
Prehired, which operated the vocational training program and originated the income share loans, was a limited liability company incorporated in Delaware. Prehired had two debt-collection companies, Prehired Recruiting in South Carolina and Prehired Accelerator in Florida, that primarily pursued collection activities on defaulted income share loans.
Prehired originated more than 1,000 “income-share” loans for students enrolled in its program around the country. Between January 27, 2022, and February 16, 2022, Prehired Recruiting filed more than 280 lawsuits in Delaware courts against consumers who entered into income share loans that it claimed were in default. Prehired Recruiting sought to collect $25,000 from each consumer, for a total of more than $7.2 million.
When Prehired Recruiting’s Delaware debt collection lawsuits came under scrutiny from the Delaware Department of Justice and Delaware courts, Prehired unilaterally changed the terms of its contracts with consumers to force them into arbitration. None of the consumers subject to Prehired’s change in terms had agreed to arbitration. Both before and after Prehired filed its lawsuits in Delaware, its debt collectors sought to induce consumers to sign settlement agreements that it described as beneficial to consumers. However, the agreements released consumers’ claims against Prehired and its debt collectors and converted the income share loans into obligations to make recurring monthly payments for several years.
The states and the CFPB allege that:
Prehired misrepresented the nature of its income share loans: Prehired’s marketing falsely claimed that its loans did not create a debt because the loan was contingent on job placement with a yearly salary over $60,000. But the company also deceptively buried terms in the loan that required graduates to pay even if they never got a job.Prehired Recruiting and Prehired Accelerator tricked consumers in its debt collection practices: Prehired Recruiting and Prehired Accelerator tricked consumers into converting the income share loan into a revised “settlement agreement” that required them to make payments on the loan and contained more burdensome dispute resolution and collection terms. Prehired marketed these settlement agreements as beneficial to the consumer without disclosing that the true purpose was to make it more difficult for consumers to contest the job placement contingencies in the original income share loan. Prehired Recruiting and Prehired Accelerator also falsely represented the amount of debt owed by consumers and stated Prehired could collect more than the consumer legally owed.Prehired Recruiting sued its students in faraway jurisdictions: Prehired Recruiting also often filed debt collection lawsuits in a jurisdiction far away from where the consumers lived and were not able to be physically present when they executed the financing contract. Many consumers were unaware that Prehired Recruiting could file an action in Delaware because Prehired’s income share loans did not provide for venue in Delaware or the consumers had little or no opportunity to review or negotiate that provision.
The CFPB also alleges that Prehired failed to disclose key terms including the amount financed, finance charges, and annual percentage rate for its income share loans.
Enforcement Action
Under the Consumer Financial Protection Act (CFPA), the CFPB, state attorneys general, and state regulators have the authority to take enforcement action against institutions that violate federal consumer financial laws, including the CFPA’s prohibition of deceptive acts or practices and the Fair Debt Collection Practices Act.
The states and CFPB allege that Prehired engaged in deceptive marketing practices by misrepresenting its income share loans’ payment obligations. They also allege Prehired Recruiting and Prehired Accelerator engaged in deceptive acts or practices in attempting to collect on Prehired debt by inducing consumers to convert the income share loan into an agreement, by imposing more burdensome dispute resolution and collection terms, and by suing in a faraway jurisdiction from where the consumers lived. The CFPB also alleges that Prehired’s failure to make required disclosures violated the Truth in Lending Act and its implementing regulation, Regulation Z.
The states and CFPB are seeking to void the income share loans, obtain redress for affected consumers, and obtain a penalty which would be deposited into the CFPB’s victims relief fund. Today’s action is part of the renewed focus the CFPB has placed on partnering with state regulators and bringing forth joint actions, including issuing an interpretive rule in 2022 designed to reinforce and expand state enforcement efforts.
Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).
Employees of companies who they believe their company has violated federal consumer financial laws are encouraged to send information about what they know to whistleblower@cfpb.gov.