On April 17, 2024, the Consumer Finance Protection Bureau (CFPB) announced that it had entered into a consent order with BloomTech Inc., d/b/a Bloom Institute of Technology (BloomTech), and BloomTech's CEO, Austen Allred, resolving allegations that the company's practices with respect to income-share agreements (ISAs) violated various consumer protection statutes. BloomTech, formerly known as Lambda, Inc., is a for-profit vocational school that offers short-term training programs for technological skills such as web development and backend engineering. BloomTech's advertising allegedly encouraged students with limited financial options to fund their attendance by entering into income-share agreements. Under these ISAs, students with salaries over $50,000 were required to pay off the $20,000 cost of BloomTech's tuition by paying BloomTech 17 percent of their pre-tax income each month until they either made 24 payments or hit a "cap" of $30,000 in total payments.
The CFPB alleged that BloomTech violated the CFPA, Truth In Lending Act (TILA), the Holder Rule, and Regulation Z by materially misrepresenting its ISAs to consumers. According to the CFPB, BloomTech falsely told consumers that the ISAs were not loans, did not create debt, carried no finance charge, and were "risk-free." The CFPB also accused BloomTech of failing to make consumers aware of key provisions in the ISAs, including that a single missed payment would place the consumer "in default," at which point the payment cap of $30,000 would immediately become due and BloomTech could send the contract to collections and/or furnish negative credit information about the consumer to consumer-reporting agencies. Moreover, while BloomTech allegedly advertised that it didn't get paid until its students did, and had "aligned incentives" with its students, it, in reality, sold its interest in some ISAs to investors for an upfront fee.
Under the terms of the consent order, BloomTech is permanently banned from all consumer-lending activities and its Mr. Allred is banned from any student-lending activities for ten years. BloomTech has agreed to pay $64,235, and Mr. Allred has agreed to pay $100,000, in civil money penalties. The Consent Order also rescinds ISAs for graduates who have not had a qualifying job in the past year, removes the finance charge from ISAs for other students who graduated more than eighteen months ago and are below a certain income threshold, and gives current BloomTech students the option to withdraw and cancel their ISA, or continue with the program under a reformed ISA.
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