‘They’re just preying on people’s hopes’: Inside the battle over job-training agreements

These deals, known as income-share agreements, or ISAs, proliferated over the past decade and have been the subject of controversy, but filing lawsuits en masse to collect on them was unusual. Prehired, which offered a 12-week training program, was seeking $25,000 from each student for a total of more than $7.2 million, federal and state regulators said. The same month the lawsuits were stopped by a judge, Prehired unilaterally amended the deals to kick them to arbitration, the regulators added.  

Now, the Consumer Financial Protection Bureau is asking a court to invalidate Prehired’s ISAs. Though Prehired is a relatively small player in the industry — the company originated just over 1,000 ISAs, according to the CFPB — the claim in Prehired’s bankruptcy marks the latest salvo in a battle between consumer advocates, regulators and companies that originate ISAs over how those agreements should be regulated. 

The concept of asking students to pay a percentage of their income to finance their education has been around for decades — libertarian economist Milton Friedman, among others, touted the approach. But over the past several years, the ISA industry has grown rapidly, largely in the tech-career training space, where programs generally aren’t eligible for federal financial aid. 

Proponents of ISAs tout them as an innovative way for students to finance their education without taking on a loan, as concerns about rising student debt mount. They also say the agreements let students and schools share the risk of the cost of an education: If the training doesn’t end up helping students make money, the theory goes, then the schools don’t get paid. 

But critics, including the CFPB, have said ISAs are debt, just with a different name. The Department of Education has also said it considers ISAs that are used to finance post-high school education to be private education loans for the purposes of the agency’s rules surrounding schools’ deals with private lenders. In many cases, critics argue that ISAs are not simply loans, but predatory ones. 

The CFPB’s claim, which was joined by 11 states, alleges Prehired violated consumer-protection laws by using misleading information to lure students into signing up for ISAs and then aggressively pursuing them to collect on the deals. While much of the complaint is focused on Prehired’s extreme alleged conduct, such as its lawsuits against former students, the CFPB also alleged the company broke the law by advertising its ISAs as something other than debt and by failing to include disclosures that are required to come with a lending product. 

Those claims have the broader ISA sector paying attention. 

“This is a good complaint for ISA industry members to read, and not just the press release,” said Vaishali Rao, a lawyer at Hinshaw and Culbertson.

CFPB weighs in for a second time

The complaint marks the second time the CFPB has made clear it believes that companies and schools marketing ISAs need to provide potential customers with the same types of disclosures required in a traditional lending product, said Rao, who leads her firm’s financial-services regulatory and compliance practice. In addition, state regulators on both sides of the aisle have joined in the complaint, indicating that they may take that position as well. 

“It’s very easy to think that you’re offering a product that can help consumers,” but if the marketing and other messaging that providers are sending to consumers doesn’t add up, she said, “and you haven’t done what you’ve said or said what you’ve done, or people are confused, that is really, really ripe ground,” for claims of unfair, deceptive and abusive practices under both state and federal laws. 

Some of the claims made by the CFPB and the states about Prehired’s approach to marketing its ISAs echo allegations made by former students, consumer advocates and regulators about the ISA industry more broadly. 

In 2021, former students sued a coding bootcamp, alleging the school misled them about the cost of its ISAs. Also that year, the CFPB found that a nonprofit called Better Future Forward misled prospective students by telling them ISAs weren’t loans and didn’t create debt. The organization agreed to a consent order with the agency without admitting or denying the CFPB’s findings. 

Earlier this year, a group of students brought a class-action lawsuit against Bloom Institute of Technology, another coding bootcamp formerly known as Lambda, alleging the company used inflated job-placement rates to lure students into enrolling and taking on ISAs. As part of that suit, the plaintiffs are alleging that by offering the ISA without registering as a lender in California, Bloom violated the state’s financing law. 

Patrick Hammon, an attorney at Pillsbury Winthrop Shaw Pittman who is representing Bloom, distanced the company from Prehired in an email. “BloomTech is not PreHIRED — and it would be a mistake to equate” Prehired’s legal issues with the class-action lawsuit filed against Bloom, he wrote. 

A court has yet to weigh in on whether ISAs are debt — and therefore whether providers are required to comply with laws regulating loan products. But there is a possibility that through its action, which aims to make Prehired’s ISAs unenforceable, the CFPB could draw a court into adopting its position that ISAs are indeed loans, said Dalié Jiménez, a professor at the University of California Irvine School of Law. 

Court backing for the CFPB’s position could be significant

The ISA contracts Prehired entered into with its students are technically considered assets of the company, which means that the bankruptcy trustee might feel they have the obligation to sell them in order to pay the company’s creditors, Jiménez said. Whoever buys the contracts would be able to collect on them, but borrowers could assert their defenses against the buyer, she said. 

If the bankruptcy judge sides with the CFPB and the states, it “would stop any of that,” because the ISAs would become liabilities instead of assets, she said. That means the students wouldn’t face collection action on the ISAs. 

One way the bankruptcy judge could find that the ISAs are unenforceable would be to back the CFPB and the states’ argument, outlined in the complaint, that the contracts are loans and that Prehired misled students when they told them the ISAs weren’t debt, Jiménez said. 

A court weighing in on this question would be significant, she said. Proponents of ISAs have argued they aren’t debt and shouldn’t be subject to regulations that are specific to credit. Critics say ISA providers are trying to evade scrutiny by having their products classified as something other than debt. 

If the bankruptcy court buys the argument the states and the CFPB are putting forward, “it’s only binding in this case, but it’s still a court saying they are loans,”Jiménez said. “It has a persuasive effect.” 

Even without a ruling from a court, some ISA providers might decide to heed the CFPB’s position that the agreements should come with truth-in-lending disclosures to avoid drawing regulators’ ire, Rao said. 

“I would caution now we have two proceedings, whether by lawsuit or by settlement, where the bureau indicated very clearly what type of disclosures should be made,” she said. 

Rao added that ISAs can still be a risky product for providers to offer, because there isn’t an explicit compliance regime. But if providers try to avoid pitfalls by making sure they’re communicating clearly with consumers and using the truth-in-lending disclosures the CFPB expects, ISAs can work. 

“I would encourage industry participants to read what happened here and what are all the ways that the product can go awry,” she said. 

It’s not only industry participants who are watching the case. Consumer advocates are paying attention too. The claim filed in Prehired’s bankruptcy represents an increased level of scrutiny on companies’ approach to ISAs, said Ben Kaufman, a fellow at the Student Borrower Protection Center, an advocacy group. 

Still, this only happened because Prehired’s alleged conduct offers such an extreme example of the risks of allowing ISAs to proliferate, said Kaufman, who has been following the space for years. 

“This is the first case to my mind in which law enforcement is really cracking down on the kind of brazen scams that have prevailed in the bootcamp space and the ISA space for the last decade,” he said. “The only reason why this is happening — the only reason why you have the CFPB and these 11 states going after Prehired — is that Prehired basically flew too close to the sun and was a little too flagrant.”  

Complaint outlines allegations of aggressive tactics

Prehired advertised to potential students that its 12-week program could train them for a career in sales even if they had kids or other commitments at home, according to the complaint. The company claimed that students who completed the program could expect to earn between $60,000 and $80,000 per year in their first year on the job and over $100,000 after one year of work, the CFPB and the states said. 

At times, the company advertised a job guarantee and said that it would help students train for and secure a job with zero upfront costs, the complaint alleges. In 2018, Prehired told students the tuition was $2,497. By 2019, the company had raised it to $15,000, the CFPB and states allege. 

Students who couldn’t afford the tuition were encouraged by Prehired to use ISAs to finance the cost of the training, according to the complaint. The fine print of the agreements required students to pay between 12.5% and 16% of their gross income until they paid a total of $30,000, the CFPB and the states allege.  

Prehired said the deals weren’t loans and didn’t create debt, according to the complaint. 

By spring of 2020, Prehired was listing its tuition price as $30,000 but selling students’ ISAs to investors for $15,000, according to the complaint. The gap between the cost of paying for training in cash, which was $15,000, and the $30,000 to finance the program through an ISA is a finance charge, according to the CFPB and the states. 

“Prehired’s ISAs are, in fact, loans that create debt, as they grant students the right to purchase services and pay for those services later,” the complaint alleges. 

Prehired advertised to potential students that the company could guarantee they would get a job paying at least $60,000 and implied students wouldn’t have to pay towards the ISA until they earned at least that amount, but the fine print of the company’s ISAs required students to start paying the company if they earned a minimum of $40,000 a year, according to the complaint. In some cases, Prehired’s agreements gave the company the right to charge students even if they only earned $30,000, the regulators allege. 

The company’s employees also increased students’ reported incomes in some cases when students didn’t update their employment or payment stubs, requiring former students to make higher payments even if their income didn’t reach the threshold for those payments, according to the complaint. 

Then in 2022, the company’s debt-collecting arm filed hundreds of lawsuits in Delaware small-claims court demanding students make payments on their ISAs, according to the complaint. 

After the company filed the suits, it would get in touch with the former students and offer to settle the cases through a payment plan in which the defendants would pay $500 a month toward a total of $25,000, according to the complaint. The company would tell the students they owed $30,000 on the ISA, the complaint alleges. 

Attorneys who have represented Prehired didn’t respond to requests for comment on the CFPB’s claims. 

In a declaration filed in the company’s bankruptcy proceeding, Joshua Jordan, Prehired’s chief executive officer, said that by filing the lawsuits, the company believed “it acted in the defaulted members’ best interests, as well as Prehired’s, because it reduced the amount owed on the ISAs from $30,000.00 to $25,000.00, and the members could participate in the proceedings virtually.” 

A few months later, in March 2022, the company dismissed all of the lawsuits after a Delaware court began staying them, the complaint alleges. Prehired’s inability to pursue former students in debt collection  “prevented Prehired from obtaining additional income streams needed to operate, including maintaining and increasing staff,” Jordan wrote. It also pushed the company into bankruptcy, he said. 

In March 2022, the same month Prehired dismissed the lawsuits in the Delaware small-claims court, the company also entered into an agreement with an online arbitration forum and unilaterally amended its ISAs to allow for arbitration, the regulators claim. Arbitration is a forum where parties adjudicate claims, but it generally limits plaintiffs’ ability to bring claims together in a class-action lawsuit. 

The company started filing arbitration claims against former students through the online platform, including against more than 60 whom the company had previously sued and then dismissed the suit, according to the complaint. Eventually, the consumer-protection unit of Delaware’s Department of Justice asked the company to cease and desist filing arbitration claims, the complaint alleges. 

Prehired started contacting former students asking them to sign settlement agreements, portraying the agreements as beneficial to the consumers, when in reality the company planned to use them to impose “onerous” repayment and collection provisions, according to the complaint. 

‘It seems much more extractive’

That a program like Prehired — which offered participants about 15 hours of video courses, along with scripts, checklists and templates, mentoring and access to a LinkedIn group, according to the complaint — successfully pitched itself to students illustrates the challenges workers face getting the training they need to get a decent foothold in the economy, Jiménez said. 

“They’re just preying on people’s hopes for a more middle-class lifestyle,” said Matthew Bruckner, an associate professor at Howard University School of Law. “It certainly doesn’t seem like this program was set up as really a shared investment in workers’ futures. It seems much more extractive.”  

David Ballard found Prehired through a Facebook post in 2020, a few months after he lost his job during the pandemic. The company said that students could earn $100,000 in their second year of work, which appealed to Ballard. 

He was wary of paying the company $30,000 through an ISA, but he figured he would be provided with a network and additional training in perpetuity that would make the program worth the cost. 

Now, a few years after completing the program, Ballard, 35, calls the ISA “predatory.” He said he could have gotten most of the information he received through Prehired for free elsewhere. Although he ultimately did land a job, Ballard said it was through his own hustling, and that if anything, his experience at Prehired got in the way. 

The program required students to essentially approach selling themselves as they would a product, Ballard said. They’d put Prehired on their resumes and contact a certain number of firms in an attempt to set up interviews. During his interview with the company that ultimately hired him, Ballard said the interviewer told him they didn’t know what Prehired was. 

And yet Prehired still wanted a significant portion of his paycheck. 

“The message was, you can get yourself out of debt. You can put yourself in a better financial situation,” Ballard said. “If you’re paying 12.5% of your gross commission — not net, gross — and then 12.5% of your base pay, how much further are you actually getting ahead?”

Ballard had suggested that a friend sign up for Prehired, but he said he’s relieved the friend didn’t take him up on it. 

“I was like dude, I’m going to be honest with you. I told you to join Prehired. I’m glad you have not, because you could literally do this on your own.”