Prehired, a Delaware-based company, promised lucrative job placements through a 12-week online training program, enticing students with the allure of six-figure salaries.
Prehired, a Delaware-based company, promised lucrative job placements through a 12-week online training program, enticing students with the allure of six-figure salaries.
The Consumer Financial Protection Bureau (CFPB) and 11 US states ordered the permanent shutdown of job-placement company Prehired over fraudulent student loan practices. The bureau also ordered the Delaware firm to pay student borrowers $30 million in relief.
The states of Washington, Delaware, California, Oregon, Minnesota, Illinois, South Carolina, North Carolina, Massachusetts, Virginia, and Wisconsin were tasked to enforce the legal action against Prehired and two associate firms.
Prehired earlier promised job placements with “six-figure salaries” to student borrowers, offering them “income share loans” as they undergo the company’s training program.
The CFPB, however, found that Prehired tricked the students by saying that the loans they took weren’t loans at all, as they were contingent on the promised high-paying job placements. Still, students were obliged to pay regardless of their employment status, a fact obscured in the fine print of the contracts.
Moreover, the affiliate companies involved in the scheme, Prehired Recruiting and Prehired Accelerator, engaged in aggressive and misleading debt collection practices. They not only misrepresented the amount owed by consumers but also coerced them into unfavorable settlement agreements.
“Prehired Recruiting 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,” CFPB said.
“Many consumers were unaware that Prehired Recruiting could file an action in Delaware because Prehired’s income share loans did not provide for a venue in Delaware or the consumers had little or no opportunity to review or negotiate that provision,” it added.
The legal action against Prehired, backed by a federal court order, assures student borrowers scammed by the company will receive redress and even have their illegal loans canceled.
The cancellation of nearly $27 million in outstanding loans and a $4.2 million refund collectively represent a substantial relief effort. Furthermore, the permanent shutdown of Prehired and the nominal civil penalty payment, albeit symbolic, emphasize the severity of the violations.
“Prehired is permanently banned from offering income share loans in the future, or any activities related to vocational education. The company has already filed for Chapter 7 bankruptcy and ceased operations, and under the terms of this order, it will stay shut down for good,” the order stated.
“Prehired will make a US$1 payment to the CFPB victims relief fund. The payment will make it possible for the CFPB to use that fund to provide additional compensation to borrowers harmed by the company’s illegal conduct,” it added.
Prehired’s case is reflective of broader issues in the student loan industry, particularly around income sharing agreements or “ISAs”. While ISAs have been touted as an innovative alternative to traditional loans, they are not without their pitfalls, as evidenced by Prehired’s practices. The recent enforcement action could potentially lead to increased scrutiny and regulation of ISAs.
The case sets a precedent for how deceptive practices in student financing will be dealt with. It sends a clear message to other companies in the industry about the consequences of misleading students. For students and borrowers, it’s a reminder of the importance of thoroughly understanding the financial agreements they enter into.
The CFPB action against Prehired is a landmark case in the ongoing effort to protect student borrowers. It not only provides immediate relief to affected students but also serves as a cautionary tale for the student loan industry, signaling a possible shift towards greater transparency and fairness in student financing options
