Podcast - The CFPB and State AGs Act Jointly Against Online Educational Company

Welcome to another podcast of Clearly Conspicuous. As we've noted in previous sessions, our goal in these podcasts is to make you succeed in this current environment, make you aware of what's going on with consumer protection agencies and give you practical tips for success. It's a privilege to be with you today.

CFPB and State Attorneys General File Joint Enforcement Action Against Prehired

Today, we discuss a joint enforcement action involving the Consumer Financial Protection Bureau and state attorneys general. The CFPB and 11 states announced that Prehired will provide more than $30 million in relief to student borrowers for "making false promises of job placement, trapping students with 'income share' loans that violated the law and resorting to abusive debt collection practices when borrowers could not pay." The CFPB partnered with Washington, Delaware, California, Oregon, Minnesota, Illinois, South Carolina, North Carolina, Massachusetts, Virginia and Wisconsin to bring the enforcement actions against Prehired and two affiliated companies. The order, approved by a federal court, requires Prehired to cease all operations, pay $4.2 million in redress to consumers that were affected by these practices and voids all outstanding income share loans valued by Prehired at nearly $27 million.

Claims Against Prehired

Prehired was a Delaware-based company that operated a 12-week online training program claiming to prepare students for entry level positions as software sales development representatives with six figure salaries and a job guarantee. Prehired offered students income share loans to help finance the costs of the program. In July of 2023, the states and the CFPB sued Prehired to void the illegal loans and facilitate consumer redress. The states and the CFPB alleged that Prehired:

1. Deceived borrowers by claiming its loans were not loans. Prehired 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.
2. Kept borrowers in the dark about key loan information. Prehired hid important loan terms from borrowers, including the amount of finance charges and the loans' annual percentage rate.
3. Tricked consumers with deceptive debt collection practices. Prehired Recruiting and Prehired Accelerator pushed borrowers into converting their income share loans into a revised settlement agreement that required them to make payments, even if they had not found a job, and which contained more burdensome dispute resolution and collection terms. 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.
4. Sued students in a faraway location. Prehired Recruiting filed debt collection lawsuits in a jurisdiction far away from where the consumers lived and were not able to physically be present when they executed the financing contract. Many consumers were unaware that Prehired Recruiting could file an action in Delaware, because Prehired income shared loans did not provide for a venue in Delaware, or consumers had little or no opportunity to review or negotiate the provision.

Results of the Court-Approved Order

Under the Consumer Financial Protection Act, the CFPB, state attorneys general and state regulators have the authority to take enforcement actions against institutions that violate federal consumer financial laws, including the CFPB's prohibition of deceptive acts and practices and the Fair Debt Collection Practices Act. Under the order approved by the court, Prehired will refund $4.2 million to student borrowers, cancel all outstanding income share loans, shut down permanently and pay a civil monetary penalty.

Key Takeaway

So here's the key takeaway. Joint enforcement actions between the federal government and state attorneys general are frequent, and they are forceful. The leveraging of governmental resources is a key consideration by consumer protection agencies when making enforcement decisions, and such joint enforcement actions almost always have severe consequences. So please stay tuned to further programs as we identify and address the key issues and developments, and provide you strategies for success. I wish you continued success and a meaningful day. Thank you.