Student loans watchdog accuses Climb Credit lender of ‘troubling tactics’

This story has been updated to add comments from Climb Credit.

A nonprofit student loan watchdog accuses private lender Climb Credit of engaging in tactics that distort educational programs and projected income while directing borrowers to for-profit schools, Yahoo Finance has learned.

The DC-based Student Borrower Protection Center (SBPC) report found that the practices of the New York-based financial technology company “could place it in violation” of the Consumer Financial Protection Act and other privacy laws. consumers, according to details shared exclusively with Yahoo Finance. .

SBPC alleged that Climb is partnering with for-profit schools to advertise questionable programs to users, distorting the projected revenues of various programs and potentially discriminating through their subscription practices.

(Screen capture: Climb Credit website)

There are “a whole host of really, really troubling tactics,” Seth Frotman, director of SBPC and former senior student loan officer at the Consumer Financial Protection Bureau (CFPB), told Yahoo Finance.

Frotman noted that Climb’s “dangerous mix” of dubious lending tactics – directing borrowers to for-profit schools, hiding the true cost of student loans, as well as engaging in “educational redlining” – really was ” a matter of concern “.

SBPC sent a letter to CFPB director Kathy Kraninger on Wednesday, outlining these issues, urging her to review the business using “all available enforcement and supervisory authorities” so borrowers are not misled. in error or wronged.

In response to the letter, Angela Galardi Ceresnie, CEO of Climb Credit, told Yahoo Finance that “the company’s mission is to empower and help individuals advance their careers and earning potential through professional and competency-based training programs that demonstrate a commitment to the best interests of their students ”and that they“ take any concerns about our business seriously ”.

She added: “When I see that 92% of Climb borrowers report graduating from their respective program, 87% found employment after graduation and those who were employed after graduation reported. a median salary increase of 69.2%, I have no doubts that our model and education partners are unquestionably part of the solution. “

SAN RAFAEL, CALIFORNIA - JUNE 12: Seniors from Redwood High School watch during a drive-through graduation ceremony at Marin County Fairgrounds on June 12, 2020 in San Francisco, California.  Due to the COVID-19 coronavirus pandemic, Redwood High School graduates held a drive-through ceremony where graduates were required to practice social distancing and stay in or immediately around their vehicles with their families.  (Photo by Justin Sullivan / Getty Images)

Seniors from Redwood High School watch during a drive-through graduation ceremony at Marin County Fairgrounds on June 12, 2020 in San Francisco, California. (Photo by Justin Sullivan / Getty Images)

For-profit college issue raised

One of SBPC’s allegations relates to Climb’s practice of offering loans in partnership with for-profit schools, which traditionally burdens students with particularly high levels of debt.

SBPC Letter regarding Climb … by Aarthi

Climb claimed he vetted the schools before marketing them on their website. However, SBPC noted that the description of the cosmetology program at Salon Professional Academy in Melbourne – a small for-profit school – was “a cut-and-paste of the school’s website,” which they believe may constitute a violation of regulation Z..

Regulation Z is federal law that aims to make the cost of borrowing clearer to consumers. This is part of the “unique protections that were put in place by Congress to try to deal with the worst abuses that typically happened before the Great Recession,” Frotman explained. “Congress intervened and put in place safeguards governing this relationship [between schools and lenders]… So the worst of these practices would ultimately be reduced.

Ceresnie de Climb disagreed with the characterization. “When it comes to identifying and partnering with schools and programs, we compare the cost and duration of the education program with the expected outcomes, including graduation rates, placement rates and expected salaries to ensure that students are not burdened with unsustainable debt. and poor economic outlook, “Ceresnie said.” Our partners are creating pathways for people who are accelerated and targeted to real career results, including in the tech and skills sectors – the programs’ general condemnation. ” for-profit “is misleading for students. “

Another problem reported by SPBC is that some of the programs recommended by Climb seem to mislead borrowers as to the qualification they would receive. According to SPBC, when a user is looking to get into teaching, they find that Climb “recommends” a teacher education certificate from the American College of Education.

But if the user takes the course, they won’t exactly get a license to become a teacher: the course was actually for people who were already teachers. This practice is misleading, argued the SBPC.

But “the idea that some certificate programs will not help people advance in their careers is wrong and does not take into account the most effective ways for our company to ensure that our workforce has the required skills. for our modern economy, ”Ceresnie replied.

(Screen capture: SBPC)

(Screen capture: SBPC)

SBPC argued that Climb also distorts the projected profits. A user who ends up completing the Career Pathways Institute’s Paraprofessional Certification program is expected to earn between $ 45,000 and $ 55,000, according to Climb. This earnings estimate is based on data from PayScale, according to Climb. But when the SBPC looked at the data from PayScale, it couldn’t find an entry for the school.

“So it seems unlikely that PayScale is in fact Climb’s source for the average graduate salary information for this particular program, making Climb’s practice of distorting the data source for its tax return likely misleading. “, said the SBPC in the letter to the CFPB.

Ceresnie said PayScale isn’t the only data source the company is looking at to make these estimates.

“When it comes to posting general education information about projected career paths and earning potential on our public site, we rely on publicly available data as disclosed,” Ceresnie explained. “In our verification process, we work directly with the school to collect the student-level data, and then we verify with third-party data.”

(Screen capture: SBPC)

(Screen capture: SBPC)

SBPC also argued that Climb’s underwriting model for their loans discriminates against borrowers based on where they go to school, possibly violating the Equal Credit Opportunity Act. (Judging a borrower’s ability to repay by the school they attended is discriminatory, especially for women and minority borrowers, and increases the cost of loans.)

“We take compliance and our fair loan obligations very seriously,” replied Ceresnie. “We clarify our student loan terms throughout the process. Plus, all approved borrowers with the same FICO score receive the same interest rate. “

The “work” of the CFPB to regulate private lenders

The SBPC report is part of a larger survey of private companies that offer loans for educational purposes but do not offer the same protections as federal student loans.

Keeping an eye on these companies is essential, especially at this time during the recession, Frotman stressed, because “the risk of profiting from them is … the highest” and there are “a multitude of players who have no scruple in charging Americans with expensive products and taking advantage of people who are just trying to find a better life.

The CFPB, Frotman pointed out, should monitor and regulate the private lending space.

“It’s their job to do that,” he said. “This is why the office was created… [Congress] gave him unique and specific powers to prosecute actors like these.

And the tactics used by Climb Credit, according to Frotman, appear to be rooted in the type of deception seen after the financial crisis.

“No matter what your name is – a fintech company, a disruptor – the tactics … make it look like you are just copying and pasting the deception and fraud that has been around for a long time.”

Aarthi is a reporter for Yahoo Finance. She can be contacted at [email protected] Follow her on Twitter @aarthiswami.

Read more:

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, Youtube, and reddit.

Comments are closed.