[co-author: Stephanie Kozol]*

On November 20, Delaware Attorney General (AG) Kathy Jennings, along with the Consumer Financial Protection Bureau (CFPB) and 11 other states, announced a settlement in excess of $30 million with Prehired LLC and affiliated debt collection companies. This settlement resolves allegations of unlawful practices in originating, servicing, collecting, and enforcing Income Sharing Agreements (ISAs) in violation of the Consumer Financial Protection Act of 2010, the Truth in Lending Act, and its implementing Regulation Z, and the Fair Debt Collection Practices Act. Specifically, regulators alleged in a July 2023 complaint that the ISAs were unlawful, and that Prehired and its affiliates made false promises of job placement and resorted to abusive debt collection practices when borrowers could not pay. As part of the stipulated final judgment entered by the Delaware bankruptcy court, Prehired is required to cease all operations, pay $4.2 million in redress to students who made loan payments between 2019 and 2023, pay $1 million to the CFPB victims relief fund, and void all of its outstanding ISAs, which are valued at nearly $27 million.

According to the CFPB’s companion press release, Prehired operated a 12-week online training program claiming to prepare students for entry-level positions as software sales development representatives with “six-figure salaries” and a “job guarantee.” Prehired offered ISAs to students to help finance the cost of the program. Two companies affiliated with Prehired, Prehired Recruiting and Prehired Accelerator, pursued collection on defaulted loans when students were unable to pay.

Among other things, the regulators alleged that:

• Prehired encouraged students to finance the cost of their training program through ISAs, while failing to disclose the loan terms, including the amount financed, finance charges, and the annual percentage rate.
• Prehired made deceptive representations about the ISAs, including that the ISAs were not credit and that repayment was contingent on job placement with a yearly salary exceeding $60,000, even though the terms of the loan required borrowers to repay the loan even if they never got a job.
• Prehired’s affiliates falsely represented the amount of debt owed by consumers, and made material misrepresentations to consumers by describing “settlement agreements” as beneficial without disclosing that the true purpose was to avoid legal defenses to the original ISAs, and to impose more onerous dispute resolution and collection terms.
• Prehired Recruiting engaged in unfair debt collection practices by attempting to collect debt in Delaware even though the ISAs did not identify the state as a venue and the majority of student borrowers do not live in the jurisdiction.
• After the Delaware AG wrote to Prehired in March 2022, Prehired dismissed its lawsuits against borrowers in Delaware and subsequently filed arbitration actions against borrowers even though borrowers never agreed to arbitrate disputes.

In September 2022, after regulators filed their lawsuit, Prehired and its affiliates filed for Chapter 11 bankruptcy. The stipulated judgment and order were entered in the Delaware Bankruptcy Court. Prehired’s business ceased operations as a result of the regulatory inquiry.

For years, regulators have sought to protect student borrowers from perceived predatory practices of lenders. This enforcement action underscores the need for lenders to carefully consider their legal obligations and their representations about the qualities and characteristics of their financial products and services. Businesses operating in heavily scrutinized industries, such as consumer lending, need to pay close attention to the regulatory landscape to ensure compliance with all applicable laws and regulations. Prehired is an example of what happens when businesses fail to do so.

*Senior Government Relations Manager