Promises, Pitfalls, and CFPB Enforcement Findings
(Reviewed by the Consumer Finance Review Board)
Background & Promises
BloomTech Inc. (formerly known as Lambda School) is a for-profit vocational training school based in San Francisco offering short-term programs in web development, data science, backend engineering, etc. Consumer Financial Protection Bureau+1
The company marketed its training programs in part through “income share agreements” (ISAs) — contracts whereby students defer paying tuition until after they graduate and earn a certain income. BloomTech made bold promises to prospective students such as:
- “No loans, no debt” — marketing that the ISA was risk-free and not a traditional loan. Consumer Financial Protection Bureau+1
- “Graduate risk-free” — suggesting students could enroll and not face financial risk if outcomes weren’t achieved. Consumer Financial Protection Bureau+1
- High job-placement/earning potential — for example, advertising “you could be signing an offer letter in 6 months” and high placement rates (e.g., 70 %-plus) for graduates of the programs. Consumer Financial Protection Bureau+1
In sum, the promise: attend this program, defer payment, graduate into a well-paid tech job, no upfront debt worries.
What Went Wrong / When Things Went Downhill
The CFPB’s consent order (filed April 17, 2024) details multiple findings of deception and misconduct by BloomTech. Consumer Financial Protection Bureau+1 Key failures include:
- Misrepresenting the ISA as not being a loan: The CFPB found the ISAs operated like traditional credit (debt) because they allowed deferred payments and carried a finance charge (on average ~$4,000 for many students). Consumer Financial Protection Bureau
- Failing to disclose required TILA/Reg Z information: The ISAs lacked required disclosures like “amount financed,” “finance charge,” and “annual percentage rate.” Consumer Financial Protection Bureau+1
- False claims about job placement and outcomes: While BloomTech advertised high success/placement rates, internal data showed placement rates closer to 50% and in some cases as low as 30%. Consumer Financial Protection Bureau+1
- Selling ISAs to investors: The company claimed incentives were aligned with students (i.e., “we only get paid if you do”), but in fact sold ISA interests to third-party investors; meaning they were paid regardless of student outcomes. Saul Ewing LLP
- Failure of risk-free promise: Contrary to advertising, many students did face default, negative credit reporting, and financial risk from ISAs. Consumer Financial Protection Bureau
The turning point appears to be the build-up of these misrepresentations over time (2017-2022) — the marketing ramped up aggressively, the ISA model proliferated, but the student outcomes and disclosures did not match the public promises. The CFPB flagged that BloomTech “marketed its school and ISAs … for students with “nontraditional life circumstances … who may struggle to pay upfront”” which indicates the target was students facing financial vulnerability. Consumer Financial Protection Bureau
Essentially, the business model shifted from a marketing promise to a financial product lacking appropriate transparency and risk mitigation — causing harm to students who believed they were entering a low-risk path to a tech job.
How Consumers Were Impacted
- Students who expected “no debt” found themselves subject to an ISA that functioned like a loan, with finance charges and obligation to pay if conditions met.
- Many students may have enrolled expecting high placement rates; when job offers did not materialize, they still faced the ISA obligations (or worse, default and negative credit impact).
- Because disclosures were inadequate, students may not have known the true cost of the ISA or difference between upfront tuition vs the deferred repayment structure.
- The misalignments between marketing and reality undermined trust and placed students in financial vulnerability — especially those who entered with limited upfront resources and assumed low risk.
- The structural element of selling ISAs to investors meant the incentive alignment was broken—the institution had less risk/share than students assumed.
In short: folks who believed they were entering a “risk-free” path to tech education ended up with debt-like obligations and less favorable outcomes than marketed.
What to Watch and How to Protect Yourself
- Watch for “no debt”, “income-share” vs loan marketing: Just because a product is marketed as “not a loan” doesn’t guarantee you aren’t taking on credit obligations. Always ask: What happens if I don’t get the job? What is the finance charge? What is the total amount I may owe?
- Scrutinize job placement claims: If the provider advertises very high placement/earning rates, ask for documented statistics. Ask: Are those independent? Are those outcomes for all students or a subgroup?
- Check for required disclosures: Under the Truth in Lending Act (TILA) and Regulation Z, closed-end credit must disclose “amount financed,” “finance charge,” and “APR.” If you don’t see them clearly, that’s a red flag.
- Understand your risk: If you’re enrolling assuming “no risk” or “no upfront cost,” make sure you understand what you do owe, under what conditions (income thresholds, job placement, etc).
- Get it in writing: Obtain copies of the contract, disclosures, and any marketing claims. If obligations aren’t clear, step back and ask for clarification.
- Make informed comparison: Compare the cost and outcomes of the program with traditional financing or alternatives. Just because it’s novel financing (ISA) doesn’t mean it’s better for you.
- Look up regulatory actions: Before committing, check if the institution has had enforcement actions, regulatory warnings or consumer complaints. That provides context to risk.