In this episode of his “Clearly Conspicuous” podcast
series, “The CFPB and State AGs Act Jointly Against Online
Educational Company,” consumer protection attorney
Anthony DiResta discusses a joint enforcement
action taken by the Consumer Financial Protection Bureau (CFPB) and
11 state attorneys general against Prehired. Prehired was an online
training program for software sales positions. The CFPB accused the
company of making false promises to borrowers, trapping students
with illegal income share loans and engaging in abusive debt
collection practices. The court-approved order requires Prehired to
cease operations and void all outstanding loans, providing more
than $30 in relief for student borrowers. Mr. DiResta explains how
these actions highlight the significant consequences of joint
federal and state enforcement actions in consumer protection.
Listen to more episodes of Clearly Conspicuous
here.
Podcast Transcript
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:
- 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. - 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. - 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. - 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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
