CA DFPI exercises its new enforcement authority against coding school’s income-based deferred tuition agreement

Ballard Spahr LLP

Ballard Spahr LLP

The California Department of Financial Protection and Innovation announced last week that it has entered into a consent order with Lambda, Inc., which does business as Lambda School, to settle the DFPI’s claims that a provision in Lambda’s student financing contracts was misleading.  The consent order also resolves the DFPI’s claim that Lambda’s marketing materials were misleading.  The DFPI’s claims were brought under the new California Consumer Financial Protection Law, which took effect on January 1, 2021 and prohibits providers of financial products and services from engaging in unfair, deceptive, or abusive acts or practices.

According to the consent order, Lambda offers California students the option of financing the cost of attending its online computer coding school through a contract in which the student agrees to pay Lambda a percentage of the student’s future income up to a specified amount (Contract).  (Lambda offers California students the option to defer tuition through income-based retail installment contracts.  Non-California students may enter into income share agreements.  Lambda discontinued ISAs for California students as a condition of receiving approval to operate from the California Bureau of Private Postsecondary Education in August 2020.)

In the consent order, the DFPI alleged that the Contract was misleading because it incorrectly stated that the student’s payment obligation was nondischargeable in bankruptcy.  The DFPI also alleged that Lambda’s marketing materials were misleading because they included representations implying Lambda’s program was “free” when, in fact, students entering into Contracts would be required to make payments if they earned above a certain income threshold.

The consent order requires Lambda to notify students who entered into a Contract that the bankruptcy dischargeability provision is not accurate.  It also requires Lambda to retain a third party to review the terms of the Contract to ensure that it complies with all applicable laws and to conduct a review of its marketing materials to ensure that they are accurate and not likely to mislead consumers.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP

Ballard Spahr LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.