Attorney General Ellison sues for-profit educational provider for illegal student lending practices
Program made false promises about jobs and income and made illegal “income-share” loans
Joins with CFPB and bipartisan group of 10 states to pursue action in bankruptcy court
July 13, 2023 (SAINT PAUL) — Minnesota Attorney General Keith Ellison announced today that he has filed an enforcement action against for-profit educational provider Prehired for deceptive marketing and lending practices. Attorney General Ellison filed this action in Delaware Bankruptcy Court in partnership with the federal Consumer Financial Protection Bureau and a bipartisan group of attorneys general from Delaware, Illinois, Massachusetts, North Carolina, Oregon, South Carolina, Virginia, Washington, and Wisconsin, as well as with California’s Department of Financial Protection and Innovation.
Prehired operated a 12-week, online vocational program that claimed it would prepare Minnesota consumers for entry-level positions as software sales development representatives with “six-figure salaries” and a “job guarantee.” Prehired then drove applicants to sign “income-share” loans 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 buried terms that required consumers to pay even if they never got a job and, in many cases, unilaterally increased required minimum monthly payments without evidence they had secured employment or experienced an increase in income.
Prehired originated more than 1,000 “income-share” loans for students of its program around the country, including 24 Minnesota consumers that paid more than $82,000 on the loans. Between January 27 and February 16, 2022, Prehired filed more than 280 lawsuits in Delaware court against consumers who entered into loans that it claimed were in default, seeking $25,000 from each consumer.
Worse yet, when Prehired’s debt-collection actions came under scrutiny from the Delaware Department of Justice and Delaware courts, Prehired unilaterally changed its contracts with consumers to force arbitration, even though none of the consumers subject to Prehired’s change in terms 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. However, the agreements released consumers’ claims against Prehired and its debt collectors and converted the loans into obligations to make recurring monthly payments for several years.
“Minnesotans who seek higher education or job training are just trying to afford their lives and help their families get ahead. Prehired took advantage of them: it misled Minnesotans and Americans to pay good money to attend a program that only left them buried in debt. I won’t stand for it,” Attorney General Ellison said. “I’m glad federal law allows me to sue when federal consumer financial laws have been violated. I’ve joined the CFPB and state attorneys general of both parties to void these illegal loans.”
Under the Consumer Financial Protection Act (CFPA), state attorneys general have authority to take enforcement action against institutions that violate federal consumer financial laws. The Attorney General is seeking to void the income-share loans and obtain redress for affected Minnesota consumers.
Attorney General Ellison and the other plaintiffs allege, among other things, that:
- Prehired misrepresented the debt obligation 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 tricked consumers in its debt collection practices. Prehired and its affiliates 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 consumers owed 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.
The plaintiffs also allege that Prehired failed to disclose key terms including the amount financed, finance charge, and annual percentage rate for its loans.
Attorney General Ellison urges Minnesota consumers to report their concerns with educational entities or other consumer complaints by submitting a complaint online or by calling the Attorney General’s Office at (651) 296-3353 (Metro), (800) 657-3787 (Greater Minnesota), or (800) 627-3529 (Minnesota Relay).
