The Consumer Financial Protection Bureau (CFPB) recently proposed a rule that would allow the agency to manage the oversight of nonbank student loan servicers. This growing market affects tens of millions of consumers and has experienced an increase in borrower delinquency in recent years.
“The student loan market has grown rapidly in the last decade, and servicers are now facing the stress of an increasing number of delinquent borrowers,” said CFPB Director Richard Cordray. “Our rule would bring new oversight to the student loan market and help ensure that tens of millions of borrowers are not treated unfairly by their servicers.”
At the present, the CFPB currently oversees student loan servicing at the country’s larger banks. The proposed rule would broaden that control to other nonbanks that work with student loans. This new rule seeks to define specific nonbank student loan servicers as “larger participants.” If approved, the rule would allow the Bureau to oversee these organizations’ activity for compliance with federal consumer financial laws.
The CFPB would be tasked with ensuring that both banks and nonbanks follow the same rules in the student loan servicing market, where most of the student loan servicing is done by nonbank servicers. According to the language of the rule, any nonbank student loan servicer that handles more than one million borrower accounts would fall under the authority and oversight of the CFPB. If that comes to pass, the CFPB would have the authority to supervise the seven largest student loan servicers. In total, the seven companies service the loans of approximately 49 million borrower accounts—the lion’s share of the student loan servicing market. The proposed rule would cover both federal and private student loans.
This would be the third market in which the CFPB has defined larger participants. The first two were consumer reporting and debt collection. Student loan servicers collect payments from borrowers for the loan holders, and process those payments, as well as providing statements and other customer service. The agency says that many servicers do a satisfactory job, but some borrowers have experienced a difficult time determining how much they owe; transfers to multiple departments and reaching personnel who are not responsive or empowered to provide clear answers; and having their paperwork lost and errors not always getting fixed.
CFPB supervision would allow the agency to evaluate the extent and scope of borrower issues by direct examination of these larger student loan servicers. The Bureau would review the servicers’ activities to evaluate the potential risks posed to consumers and to assess compliance with federal consumer financial law.