Oct. 18: CFPB Recent Updates
The Consumer Financial Protection Bureau (CFPB) sued student lender Climb Credit, and its largest shareholder 1/0 (“one zero”), for inducing students to take out loans by misrepresenting the quality of the training programs at their partner schools and making false claims about graduates’ hiring rates and salaries. The lawsuit alleges Climb Credit and 1/0 claimed to have vetted its partners’ schools for “outcomes and value” but in fact offered loans for programs that had failed the defendants’ own return-on-investment analysis or which they had not analyzed at all. The lawsuit also alleges that the defendants failed to properly disclose annual percentage rates in online marketing materials and illegally hid loan origination fees in disclosures. The CFPB is asking the court to order Climb Credit and 1/0 to stop their illegal practices, compensate the borrowers they harmed, and pay a civil penalty to the CFPB’s victim relief fund.
The CFPB alleges that the defendants maximized revenue by enticing potential customers into borrowing money for various vocational programs, including coding bootcamps. The lawsuit alleges that the defendants violated federal law, including by:
- Deceiving borrowers about its partner schools: The defendants told borrowers they had vetted partner schools’ programs for outcomes and value, and touted a “return-on-investment” analysis. Partner schools put “Quality Verified” badges on their websites, and the defendants also operated a program comparison tool that made similar claims about return on investment. In reality, the defendants often did not vet programs for outcomes or value or used unreliable data in doing so.
- Exploiting consumers’ trust by holding itself out as a reliable intermediary: Climb caused consumers to rely on it in identifying and choosing quality educational programs that they could pay for with Climb loans. And when consumers took out Climb loans to attend these programs, the defendants profited from consumers’ trust even as they failed to vet programs for quality.
- Illegally ignoring red flags: In over 700 cases, the defendants told potential borrowers that a school had passed the return-on-investment analysis even when the defendants internally acknowledged they had low confidence in the school’s claimed job placement rate.
- Hiding true costs of its loans: The defendants failed to accurately disclose finance charges on loan documents and failed to disclose the annual percentage rates when required to do so in marketing materials. Read more