Nonbank student loan servicers are new CFPB focus
Large servicers of both federal and private student loans may soon fall under the oversight of the Consumer Financial Protection Bureau (CFPB) under a recently issued proposal. The bureau said the plan would add the final tool for the CFPB to have visibility into the complete cycle of student loan debt, from origination through servicing to debt collection and credit reporting.
"Student loan servicers can have a profound impact on borrowers and their families. Servicers collect payments on loans, work with struggling borrowers on repayment options, and may report borrowers' activity to credit reporting agencies," said CFPB Director Richard Cordray when announcing the proposal.
"In many ways, a student loan can make or break people's financial lives. A borrower's sole contact regarding a loan, for most of the life of the loan, is with a servicer. So we need to make sure they are complying with federal consumer financial laws."
The Credit Union National Association (CUNA) commended the CFPB for taking steps to regulate entities that have been operating without regulation. CUNA has urged the CFPB to focus on these entities rather than on regulated institutions.
If adopted, the rule would place any nonbank student loan servicer that handles more than 1 million borrower accounts under CFPB supervisory authority. The bureau estimated that threshold places the seven largest student loan servicers under its authority and that, combined, those seven service the loans of 49 million borrower accounts, representing most of the activity in the student loan servicing market.
The proposed rule would cover servicing of both federal and private student loans. Federal student loans are commonly serviced by private companies, and any of those companies that handle more than 1 million borrower accounts would be subject to the Bureau's supervisory authority. The CFPB will continue to coordinate closely with the U.S. Department of Education, which conducts reviews of companies handling loans in accordance with the federal student aid program.
The public will have 60 days to comment on the proposed rule after it is published in the Federal Register.