Consumer Watchdog Sues Coding Bootcamp Lender Climb Credit
Credit: Tierney L. Cross / Bloomberg / Getty Images- The Consumer Financial Protection Bureau sued online student lending company Climb Credit alleging that it hid the true cost of its loans.
- Additionally, it alleges the lender misled students by overstating the quality of the programs it lent to.
- The bureau is asking a district court to halt Climb Credit’s lending practices.
The Consumer Financial Protection Bureau (CFPB) sued the online student lending company Climb Credit on Thursday, accusing it of misleading and deceptive practices.
CFPB, the U.S. government’s consumer watchdog agency, alleges that Climb Credit misrepresented the quality of the vocational programs, including coding bootcamps, it partnered with. At times, the company lent to students who planned to enroll in bootcamps that didn’t pass Climb Credit’s internal return on investment (ROI) analysis, according to the lawsuit.
CFPB also alleged that Climb Credit hid the trust cost of its loans.
Climb Credit CEO Casey Powers told BestColleges that CFPB does not have evidence that the company’s statements or data points were misleading or harmful to borrowers. Powers added that the bureau’s suit “unfairly” calls into question the positive outcomes students attain through Climb’s partner schools.
“We’re very disappointed in the fact that after [over three] years of complete cooperation with the CFPB, sending them thousands of documents and providing live testimonies — and showing a willingness to negotiate a settlement in good faith — the CFPB abruptly ended our conversations and has chosen to move this matter to litigation rather than work with us,” Powers said.
The watchdog sued Climb Credit and its largest shareholder, 1/0. CFPB is asking the U.S. District Court for the Southern District of New York to stop Climb Credit’s practices. It also wants Climb Credit to compensate harmed borrowers and pay a civil penalty to CFPB’s victim relief fund.
“Climb Credit used false promises and outright lies to lure borrowers into loans for vocational programs,” CFPB Director Rohit Chopra said in a statement. “Tens of thousands of students may have been impacted by Climb’s actions, and the CFPB is suing Climb and its investor overlord to halt these activities and get relief for students.”
Climb marketed itself as a “trusted intermediary” through its ROI analysis, the suit alleges. Its misleading claims regarding the schools it partnered with served to increase the volume of loans Climb originated for these programs, CFPB said.
In more than 700 instances, the suit alleges, Climb said a program passed its ROI analysis despite the company having “low” confidence in the placement rate provided by the school.
“Defendants thereby maximized their revenues by inducing consumers to take out loans without regard to the actual quality of the programs offered by their partner schools,” the suit states. “In doing so, defendants took unreasonable advantage of consumers’ reasonable reliance.”
According to the lawsuit, the default rate for Climb loans “regularly exceeded 20%.” At partner schools, the default rate was above 40%.
For comparison, the federal student loan default rate was between 10-11.5% from 2016-2020.
CFPB adds that Climb Credit miscalculated lending disclosures until approximately November 2019. Specifically, the suit alleges that Climb’s disclosures did not include the loan’s origination fee.
At least 15,000 received disclosure documents without an origination fee, CFPB said. The aggregate amount of those omitted fees is over $6.6 million.
Powers said Climb Credit plans to continue its mission of making skills-based and certificate programs accessible to students as an alternative to four-year degree programs. She added that CFPB’s lawsuit is a “completely misguided narrative distract from the core issues that persist in the higher education system.”
Winston Berkman-Breen, legal director of the Student Borrower Protection Center (SBPC), celebrated CFPB’s lawsuit.
“We are glad to see the bureau exercising this authority in this case,” Berkman-Breen said in a statement. “Consumers should be able to navigate the marketplace and choose programs and financing options based on the information presented to them and without fear that they are being lied to.”
SBPC added that it sent a letter to CFPB in October 2020 asking the bureau to investigate Climb Credit. SBPC’s letter outlines many of the claims made in the bureau’s recent lawsuit.