On November 20, 2023, the Consumer Financial Protection Bureau (“CFPB”) announced that it had partnered with the 11 States of California, Delaware, Illinois, Massachusetts, Minnesota, North Carolina, Oregon, South Carolina, Virginia, Washington, and Wisconsin to provide $30 million in relief to students who had apparently entered into Prehired, LLC’s “vocational education” program, which came with a peculiar, an apparently illegal, student loan package.
According to the CFPB, Prehired, LLC (“Prehired”) operated a private, for-profit vocational training program for software sales representative. Further, Prehired, as the name suggests, would promise students that their educational program would earn them immediate hire with handsome salaries. Prehired charged up to $30,000 for its educational program. For student who could not afford the tuition, Prehired offered “income share loans.”
The CFPB alleged that Prehired’s income share loans would require students to make minimum payments equal to up to 16% of their gross income for 4 to 8 years, or until they had paid a total of $30,000, whichever was sooner. Among other things, the CFPB found that Prehired failed to disclose key financing terms required by the Truth in Lending Act (TILA) and Regulation Z.
According to the Stipulated Final Judgment and Order, in order to collect debts from students, Prehired Recruiting, LLC and Prehired Accelerator, LLC would falsely represent the amount of debt owed by students, and would make material misrepresentations by describing “settlement agreements” as beneficial without disclosing the true purpose of the agreements was to avoid the student’s defenses to the original Prehired income sharing agreements, as well as to impose more burdensome dispute resolution and collection terms. It is worth noting, the defendants in the action, including Prehired as well as its affiliated companies, Prehired Recruiting, LLC and Prehired Accelerator, LLC, neither admitted nor denied the allegations.
As a result of the action, Prehired is required to refund approximately $4 million to students and to permanently void all of its outstanding income share loans, which are valued by Prehired at approximately $27 million.
This Stipulated Final Judgment and Order against Prehired comes as no surprise, as the CFPB has been keen on investigating the student loan space recently, having issued a special edition Supervising Highlights report in March 2023, which focused in part on student lending practices. Additionally, the CFPB obtained a Consent Order against at least one student loan servicing company in 2022 for apparently deceptive acts and practices, showing the CFPB’s growing trend in targeting student loan service providers.