The Consumer Financial Protection Bureau (CFPB) has recently filed a lawsuit against student lender Climb Credit and investment firm 1/0, alleging deceptive practices and false promises to borrowers. Here are the key details of this recent development:
On October 17, 2024, the CFPB filed a lawsuit against Climb Credit, Inc., its subsidiaries, and its controlling investor 1/0 Holdco LLC. The lawsuit alleges that these entities engaged in deceptive practices and provided false information to potential borrowers.
The CFPB's lawsuit accuses Climb Credit and 1/0 (One Zero) of several violations:
Lawsuit Details
Misrepresentation of partner schools
The companies allegedly provided false information about the quality of training programs at their partner schools and made misleading claims about graduates' hiring rates and salaries.
False vetting claims
Climb Credit claimed to have vetted partner schools' programs for outcomes and value, but often did not actually do so or used unreliable data.
Improper disclosures
The defendants allegedly failed to properly disclose annual percentage rates in online marketing materials and illegally hid loan origination fees in disclosures.
Exploitation of consumer trust
Climb Credit positioned itself as a reliable intermediary for identifying quality educational programs, causing consumers to rely on its recommendations2.
CFPB's Enforcement Action
The CFPB is seeking several remedies through this lawsuit:
- Halting of illegal practices
- Compensation for harmed borrowers
- Imposition of civil penalties, to be paid into the CFPB's victims relief fund2
Responses from Climb Credit & (1/0) One Zero Capital
Climb Credit CEO Casey Powers stated that the company stands behind its publicly shared data about program outcomes and expressed disappointment in the CFPB's decision to pursue litigation.
We’re very disappointed in the fact that after 3+ years of complete cooperation with the CFPB, sending them thousands of documents and providing live testimonies — and showing a willingness to make requested changes and to negotiate a settlement in good faith — the CFPB abruptly ended our conversations and has chosen to move this matter to litigation rather than work with us,
Climb Credit CEO Casey Powers
1/0 Capital General Counsel Jason Berland claimed that the allegations are without merit and expects them to be dismissed. He emphasized that 1/0 Holdco is a passive minority shareholder in Climb.
The claims are entirely without merit and we expect them to be dismissed, 1/0 Holdco is a passive minority shareholder in Climb. 1/0 Capital provided services to the company in its early stages of development, much like any venture capital investor.
General Counsel at One Zero Capital, Jason Berland
Student Alternative Lending Market Industry Context:
- The student alternative lending market is estimated at $20-25 billion annually
- Coding bootcamps represent approximately $2.5 billion of this market
- Climb Credit has originated approximately $500 million in loans since its inception
Our Opinion
This story shines a light on what many would call regulatory overreach. What's especially intriguing—and somewhat alarming—is the case’s extent, targeting not just Climb but also 1/0 Holdco. This approach could signal a more aggressive stance from regulators towards even passive minority shareholders within any investment firm linked to contentious practices.
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