Lambda School Reaches Settlement with DFPI, Agreeing to End Deceptive Educational Financing Practices

Apr 26, 2021

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SACRAMENTO – The California Department of Financial Protection and Innovation (DFPI) today finalized a settlement with San Francisco-based Lambda, Inc. which removes deceptive language from Lambda School’s student contracts, clarifying for students that this type of financing can be discharged in a bankruptcy filing. The language violates the new California Consumer Financial Protection Law (CCFPL), which took effect this year and prohibits companies from engaging in practices that are unlawful, unfair, deceptive, or abusive.

As part of the settlement Lambda will (1) notify students that the bankruptcy dischargeability provision language is not accurate; (2) retain a third party to review the terms of the school’s finance contract to ensure that it complies with all applicable laws; and (3) undergo a review of its marketing materials to ensure that the information is accurate and not likely to mislead consumers. The settlement is the result of a DFPI investigation that found that Lambda was engaged in conduct that violated the new law.

“California has a strong interest in protecting the rights and financial well-being of students attending private postsecondary institutions,” said DFPI Commissioner Manuel P. Alvarez. “This action helps ensure that future students can confidently enter into educational financing contracts without being subjected to false or misleading terms.”

Lambda is a coding school that offers its California students the option of financing the cost of the program through a contract by which students defer tuition until they begin working in a specified job earning a specific income. Students are then obligated to make monthly installment payments until the contract amount is fully repaid. The DFPI’s investigation found that Lambda’s contract contains a provision that falsely asserts that the Contract is a “qualified educational loan…subject to the limitations on dischargeability contained in…the United States Bankruptcy Code.”

In addition to consumer finance products, DFPI regulates state-chartered banks and credit unions, commodities and investment advisers, money transmitters, the offer and sale of securities and franchises, broker-dealers, nonbank installment lenders, payday lenders, mortgage lenders and servicers, escrow companies, Property Assessed Clean Energy (PACE) program administrators, debt collectors, rent-to-own contractors, credit repair and consumer credit reporting agencies, debt-relief companies, and more.