The American Consumer Financial Protection Bureau (CFPB) stated on Tuesday that BloomTech, a for-profit coding boot camp formerly known as Lambda School, deceived students about loan costs, made false claims about graduate placement rates, and engaged in illegal loan practices under the guise of "Income Share Agreements" with high fees.
The order marks the conclusion of the CFPB's investigation into BloomTech's practices and the beginning of the agency's penalties against the organization.
The CFPB permanently bans BloomTech from consumer loan operations and CEO Austen Allred from making loans to students for a period of 10 years. Additionally, the agency orders BloomTech and Allred to stop collecting payments on loans from graduates who did not secure suitable employment, allow students to withdraw their funds without penalty, and cancel financial changes for "specific agreements."
"BloomTech and its CEO encouraged students to take out loans for Income Share Agreements that were marketed as risk-free, but in reality incurred significant funding costs and many of the same risks as other credit products," said CFPB Director, Rohit Chopra, in a statement. "Today's action underscores our increased focus on investigating individual executives, and where necessary, holding them accountable for breaking the law."
BloomTech and Allred are also required to pay over $164,000 in civil penalties to the CFPB's victim assistance fund, with BloomTech contributing $64,000 and Allred making up the remaining $100,000.
Allred founded BloomTech, rebranded from Lambda School in 2022 after laying off half of his staff in 2017. The professional organization is owned by Allred, primarily located in San Francisco, but backed by venture capital funds and various investors including Gigafund, Tandem Fund, Y Combinator, GV, GGV, and Stripe. It was once valued at over $150 million.
Inspectors criticized the agency's pioneering business model at the time – the Income Share Agreement, or ISA – as reckless.
BloomTech "issued at least" 11,000 Income Share Agreements to fund students' tuition for short-term credential programs, typically six to nine months, in fields including web development, data science, and edge engineering, according to the CFPB. These loans required recipients who earned over $50,000 in related industry to repay BloomTech 17% of their income before tax each month until reaching a total repayment threshold of 24 payments or $30,000.
BloomTech did not market the loans as loans, in fact, claiming they did not create debt and were "risk-free" – and advertised a placement rate of 71% to 86%. But the CFPB found these marketing claims and others to be false.
BloomTech's loans actually carried an annual percentage rate and an average funding charge of about $4,000, none of which was disclosed to students, and a missed payment led to default. Placement rates at the school were closer to 50% and dropped to around 30%. Without the knowledge of many students, BloomTech sold some of its loans to investors while waiving rights that should have been protected under the federal Holder Rule.
Prior to the CFPB's order, BloomTech briefly faced scrutiny from California's oversight board a few years ago for unlicensed activity. Faced other lawsuits alleging that the school misrepresented job prospects and earnings. Last year, leaked documents obtained by Business Insider raised questions about the company inflating its efficacy and a curriculum that did not improve student skills as expected.
To comply with the CFPB's order, BloomTech must waive funding charges for those who completed the program over 18 months ago and earned less than $70,000 from qualifying employment. Additionally, the company must allow current students to withdraw from the program and cancel their loans, or continue with a third-party loan.
