California Settles with Online School for Allegedly Deceptive Financing Practices

On April 26, 2021, the California Department of Financial Protection and Innovation (DFPI) announced that it had entered into a settlement agreement with an online coding school, resolving allegations that the school engaged in deceptive acts and practices in violation of California’s new Consumer Financial Protection Law (CCFPL).

The school offers its students the option to finance their education through a contract in which the student promises to repay the school based on a percentage of the student’s future income.  This contract has a provision that states, “this extension of credit is a qualified educational loan and is subject to the limitations on dischargeability in bankruptcy contained in Section 523(a)(8) of the United States Bankruptcy Code.”  DFPI alleged that this language is deceptive in violation of the CCFPL because the contract is not a “qualified educational loan” and therefore is not subject to limitations on dischargeability.

Under the settlement agreement, the school agreed to provide notice to students who entered into a contract with the school that the bankruptcy non-dischargeability provision is not accurate.  Additionally, the school agreed to retain a third-party to review its contract to ensure that the contract complies with all applicable state and federal laws.