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Feds Hit San Francisco Coding Boot Camp With Sanctions

After years of sanctions from California, a San Francisco coding boot camp and its CEO have run afoul of federal authorities who accuse them of deceiving students and profiting from dodgy loan agreements.

The Golden Gate Bridge with San Francisco behind it.
(TNS) — After years of private legal actions and sanctions from California authorities, a San Francisco coding bootcamp and its CEO have run afoul of federal authorities who accuse them of deceiving students and profiting from dodgy loan agreements.

On Wednesday, the U.S. Consumer Financial Protection Bureau ordered Bloom Institute of Technology, formerly called Lambda School, and its founder Austen Allred, to cease issuing loans structured as tuition repayment plans, and to pay more than $160,000 in restitution.

The agency issued the order against the company and its CEO "for deceiving students about the cost of loans and making false claims about graduates' hiring rates."

Instead of charging up-front tuition, the company has for years offered income sharing agreements. That means students pay back the cost of their instruction once they are hired into a tech job that pays a minimum amount.

But federal authorities said the company, also called BloomTech, lied about its job placement rates and charged students onerous fees on top of issuing what were essentially loans.

BloomTech did not immediately respond to a request for comment. Allred was silent on his X page Wednesday after the order was issued.

According to the CFPB, Allred's for-profit company told its students the income share agreements were not loans and did not create debt, nor carry any fees, when in fact they did. A single missed payment could trigger a default.

The company still advertises an 86% job placement rate for graduates on its website. In fact those placement rates were more like 50% and sometimes as low as 30%, the agency said.

"Allred tweeted that the school achieved a 100 percent job-placement rate in one of its cohorts, and later acknowledged in a private message that the sample size was just one student," the CFPB said.

Despite promising students "We don't get paid until you do," the company was also selling income share loans to investors to create revenue before students even began repaying, the CFPB said.

The company also failed to include legally required contractual language that would make those loan owners subject to legal claims.

Allred must pay $100,000, while the company must pay the remaining $64,000 to a victim's restitution fund. The company is being ordered to stop collecting on income share loans for graduates who the company failed to place in a tech job during the past year.

The order also eliminates the loan fees charged to students who graduated more than a year and a half ago and managed to get a job making $70,000 or less, triggering the pay back provisions.

The school will also have to allow current students to withdraw without penalty. Previously, students who dropped out would have to pay back their loans on a prorated basis.

The claims brought by the CFPB very closely resemble those brought in attempted class actions and arbitration cases by the nonprofit National Student Legal Defense Network.

Many of those actions have settled out of public view, constrained by private arbitration agreements the school regularly had students sign that have continually prevented them from banding together in class actions against the company.

The order "tracks the many cases we have brought against Bloom Tech and Austen Allred over the years," said Alex Elson, vice president and co-founder of the National Student Legal Defense Network, in a text. "It's great to see that their days of enticing students into predatory income share agreements are over."

Elson's group has brought cases on behalf of students who say they were duped by the promise of a well-paying job in tech after seeing Allred's job placement promises.

Many of those plaintiffs, some of whom turned to the coding bootcamp in desperation after being laid off during the pandemic, said they received subpar instruction, at times from other students, and little to no job placement help.

The company was also previously fined and ordered to shut down by the California Bureau for Private Postsecondary Education for failing to properly register as an educational institution.

Allred's company negotiated the fine down to $50,000 and redid the proper paperwork, never ceasing to enroll students.

© 2024 the San Francisco Chronicle. Distributed by Tribune Content Agency, LLC.