WASHINGTON—The CFPB has joined with several state attorneys general and a state regulator to take action against Prehired for what the government alleged is deceptive marketing and debt collection practices.
According to the CFPB, Prehired operated a 12-week online training program that claimed to prepare consumers for entry-level positions as software sales development representatives with “six-figure salaries” and a “job guarantee.” The CFPB said Prehired drove interested applicants to sign an “income share” loan to finance the costs of the program and represented that consumers would pay nothing until they got a high-income job through Prehired.
“In reality, Prehired deceptively buried terms that required consumers to pay even if they never got a job and, in many cases, unilaterally increased consumers’ required minimum monthly payments without any evidence that they had secured employment or experienced an increase in income,” the Bureau said.
Seeking to Void Loans
The CFPB is seeking to void the loans and obtain redress for affected consumers and a penalty, which would be deposited into the CFPB’s victims relief fund. The attorneys general from Washington, Oregon, Delaware, Minnesota, Illinois, Wisconsin, Massachusetts, North Carolina, South Carolina, and Virginia joined the action, along with California’s Department of Financial Protection and Innovation.
According to the CFPB, Prehired, which operated the vocational training program and originated the income share loans, was a limited liability company incorporated in Delaware. Prehired had two debt-collection companies, Prehired Recruiting in South Carolina and Prehired Accelerator in Florida, that primarily pursued collection activities on defaulted income share loans, the Bureau said.
More Than 1,000 Loans
“Prehired originated more than 1,000 ‘income-share’ loans for students enrolled in its program around the country,” the CFPB said. “Between January 27, 2022, and February 16, 2022, Prehired Recruiting filed more than 280 lawsuits in Delaware courts against consumers who entered into income share loans that it claimed were in default. Prehired Recruiting sought to collect $25,000 from each consumer, for a total of more than $7.2 million.
“When Prehired Recruiting’s Delaware debt collection lawsuits came under scrutiny from the Delaware Department of Justice and Delaware courts, Prehired unilaterally changed the terms of its contracts with consumers to force them into arbitration,” the CFPB said. “None of the consumers subject to Prehired’s change in terms had agreed to arbitration. Both before and after Prehired filed its lawsuits in Delaware, its debt collectors sought to induce consumers to sign settlement agreements that it described as beneficial to consumers,” the CFPB continued. “However, the agreements released consumers’ claims against Prehired and its debt collectors and converted the income share loans into obligations to make recurring monthly payments for several years.”
The Allegations
The states and the CFPB are alleging that:
- Prehired misrepresented the nature of its income share loans. “Prehired’s 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.”
- Prehired Recruiting and Prehired Accelerator tricked consumers in its debt collection practices. “Prehired Recruiting and Prehired Accelerator tricked consumers into converting the income share loan into a revised “settlement agreement” that required them to make payments on the loan and contained more burdensome dispute resolution and collection terms. Prehired marketed these settlement agreements as beneficial to the consumer without disclosing that the true purpose was to make it more difficult for consumers to contest the job placement contingencies in the original income share loan.
“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.”
- Prehired Recruiting sued its students in faraway jurisdictions. “Prehired Recruiting also often filed debt collection lawsuits in a jurisdiction far away from where the consumers lived and were not able to be physically present when they executed the financing contract. Many consumers were unaware that Prehired Recruiting could file an action in Delaware because Prehired’s income share loans did not provide for venue in Delaware or the consumers had little or no opportunity to review or negotiate that provision.”
Additional Allegations
The CFPB is also alleging that Prehired failed to disclose key terms including the amount financed, finance charges, and annual percentage rate for its income share loans.
Enforcement Action
The states and CFPB allege that Prehired engaged in deceptive marketing practices by misrepresenting its income share loans’ payment obligations, and are further alleging Prehired Recruiting and Prehired Accelerator engaged in deceptive acts or practices in attempting to collect on Prehired debt by inducing consumers to convert the income share loan into an agreement, by imposing more burdensome dispute resolution and collection terms, and by suing in a faraway jurisdiction from where the consumers lived.
The CFPB also alleges that Prehired’s failure to make required disclosures violated the Truth in Lending Act and its implementing regulation, Regulation Z.
The states and CFPB are seeking to void the income share loans, obtain redress for affected consumers, and obtain a penalty which would be deposited into the CFPB’s victims relief fund.
Renewed Focus
The CFPB said the new action is part of the renewed focus the CFPB has placed on partnering with state regulators and bringing forth joint actions, including issuing an interpretive rule in 2022 designed to reinforce and expand state enforcement efforts.
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