CFPB Sues Student Lender Climb Credit and Investment Firm 1/0 for Deceiving Borrowers About Coding Bootcamps and Vocational Programs

On October 17, 2024, the Bureau filed a lawsuit against Climb Credit, Inc.; its wholly owned subsidiary Climb Investco, LLC; its wholly owned sub-subsidiary Climb GS Loan Fund 2018-1, LLC; and the originators, initial owners, and initial operators of these entities, 1/0 Holdco LLC and 1/0 Capital LLC. 1/0 Holdco LLC and 1/0 Capital LLC are headquartered in New York and Climb Credit, Inc. was headquartered in New York during most of the time period relevant to this suit and continues to conduct a significant amount of its operations there.

The Bureau alleges these entities (the Climb Enterprise) worked together in online student lending for short-term vocational programs at schools with whom Climb Credit, Inc. has partnered. The Bureau further alleges that, through numerous statements since at least 2017, the Climb Enterprise assured consumers that if a Climb loan was available to fund tuition for a school’s educational program, the consumer could trust that the Climb Enterprise had vetted the quality of that program and school.

The Climb Enterprise positioned Climb Credit, Inc. as a trusted intermediary by presenting it as a company that prospective borrowers could rely upon to act in their interests by identifying quality educational programs and schools. In fact, however, as the Bureau alleges, the Climb Enterprise offered loans for many programs and schools that it had not vetted for quality. This practice sought to maximize the Climb Enterprise’s revenue by inducing consumers to take out loans without regard to the actual quality of the programs offered.

The Bureau asserts the Climb Enterprise violated the Consumer Financial Protection Act of 2010 (CFPA) by engaging in abusive acts and practices in taking unreasonable advantage of consumers’ reliance on the Climb Enterprise’s representations as to the programs and schools; violated the CFPA through deceptive acts and practices regarding the Climb Enterprise’s vetting of schools and the outcomes for consumers who attended the schools; violated the Truth in Lending Act (TILA) and Regulation Z by failing to disclose finance charges on loan documents and annual percentage rates on advertisements; violated TILA and Regulation Z by using the names, emblems, or logos of certain schools to imply that they endorsed Climb loans; and violated the CFPA by committing acts or practices in violation of TILA and Regulation Z.

The Bureau seeks, among other things, injunctive relief to prevent future violations and monetary relief in the form of redress to consumers and the imposition of civil money penalties.

PHOENIX Consulting Note:

This entire action underscores the critical importance of robust and circumspect vendor management. It is not enough to simply gather data and check the boxes. Financial institutions must engage third-party vendor management professionals who utterly understand the nature of the work that the vendors that have been engaged in and have the actual business background to truly examine the vendors organizational structure, C-Suite and staff team members personal performance and qualifications, business expertise, business processes, and reputation.

The CFPB has interpreted this company's failures to oversee their co-companies (vendor) actions, claims, operations, marketing efforts, etc., as purposeful deceptive acts, and they are resolved to punish this company accordingly.

Prudent CEO’s will read between the lines of this particular action, then examine and make changes to their third-party vender management structures and exam processes accordingly.

You can review the Complaint here: cfpb_climb-credit-complaint_2024-10.pdf (consumerfinance.gov)

You can read the CFPB's Press Release here: CFPB Sues Student Lender Climb Credit and Investment Firm 1/0 for Deceiving Borrowers About Coding Bootcamps and Vocational Programs | Consumer Financial Protection Bureau (consumerfinance.gov)