A federal watchdog is suing a tech boot camp, accusing it of loading students up with 'predatory' debt and telling them it could collect 'more than the consumer legally owed'

• The CFPB and state attorneys general sued a career boot camp that declared bankruptcy in 2022.
• They accused the company, Prehired, of misrepresenting the nature of its income-share agreements.

A federal watchdog hit a tech boot camp with a lawsuit accusing it of loading students up with a "predatory" form of debt.

Last week, the Consumer Financial Protection Bureau joined 10 state attorneys general and California's Department of Financial Protection and Innovation in suing Prehired, a boot camp that said it aimed to "help 10,000 overworked and underpaid people launch 6-figure potential sales careers by 2025."

The CFPB and the states said in their complaint that Prehired "misrepresented" the nature of the income-share agreements it made with people who enrolled in its 12-week online training program. Income-share agreements, or ISAs, generally require a borrower to pledge a certain portion of their income to the lender in exchange for money to pay for education.

"Prehired failed to advise consumers about the cost of these loans, and deceptively represented that the ISAs are not loans and did not create debt," the complaint said. "Prehired also represented that consumers would pay nothing until they got a job and 'partner[ed] with' Prehired in their career. However, Prehired required consumers to pay even if they never obtained a job that Prehired purported to train them for, and, in many cases, calculated minimum monthly payments based on projected rather than actual income."

The lawsuit also accused Prehired of "falsely representing the amount of debt owed by consumers by stating that Prehired could collect more than the consumer legally owed."

Prehired did not respond to Insider's request for comment on the allegations in the lawsuit.

The states and the CFPB are seeking to void the ISA loans, compensate consumers who were harmed, and obtain a penalty from Prehired to be deposited into the CFPB's victims-relief fund.

Prehired filed for bankruptcy protection in 2022. In its bankruptcy filing, it said that during its "startup phase," it "had to turn away hundreds of potential members who did not have the savings or income to pay Prehired's training costs, nor did these potential members qualify for a third-party loan."

The complaint said Prehired filed more than 280 lawsuits in 2022 demanding that former students who it said had defaulted pay $25,000 each. Those lawsuits have since been dropped. Prehired said in its bankruptcy filing that it "believed that in these lawsuits, 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."

In a comment on a post on LinkedIn last year, one person said: "Nearly 2 years later I still do not make close to 6-figures. I have exhausted my savings to keep me afloat but I am just ashamed to have gone through PreHired's training bootcamp."

Another commenter said that "the ISA payment and the fear of defaulting have been my single & biggest stressor financially since I started working after finishing the course."

Prehired has faced several other legal challenges from states. Delaware's Department of Justice launched an investigation into the company in May 2022. The next month, Washington's attorney general, Bob Ferguson, filed a lawsuit accusing the company of "offering a deceptive online training program that duped Washingtonians into paying $30,000 for an online course."

A company spokesperson said at the time Prehired was "shocked and surprised by the filing of the complaint by the Washington Attorney General's Office, and the allegations contained therein. We categorically deny the allegations in the complaint and look forward to defending these allegations in court."

The CFPB has cracked down on boot camps accused of misrepresenting their ISAs. In 2021, the agency said one ISA provider, Better Future Forward, misrepresented its product by saying the money it was giving borrowers was not a loan and therefore not affected by consumer-protection law.

"Law enforcement at the state and federal levels should and must continue to chase down the untold number of scam bootcamps still out there, deliver relief to the countless borrowers already stuck in predatory loans and create a safer environment for individuals trying to increase their education and training," Ben Kaufman, a fellow with the advocacy group Student Borrower Protection Center who has investigated Prehired, said in a statement.

"With tens of thousands of students now trapped in tens of millions of dollars of predatory ISAs taken on under fraudulent pretenses, inaction by consumer protection officials is not an option."