On Friday, November 20, the Consumer Financial Protection Bureau (CFPB) announced it will consider writing new marketwide federal standards for student loan servicers. This marks the first time that the CFPB’s rulemaking agenda has included student loan servicing.
This announcement comes on the heels of the CFPB’s September 2015 148-page report titled Student Loan Servicing (September Report). The September Report is a culmination of the CFPB’s public inquiry into student loan servicing practices with the U.S. Department of Education and U.S. Department of the Treasury. The agencies received more than 30,000 comments from the public, leading the CFPB to conclude that “borrowers may not be well-served by the status quo” and there “may be a mismatch between borrowers’ needs and actual services delivered.”
The marketplace for student loan debt and student loan servicing has skyrocketed in recent years. According to the September Report, more than “41 million Americans collectively owe more than $1.2 trillion in student loan debt, making student loan debt the second-largest class of consumer debt behind mortgages.” The CFPB estimates that one in four student loan borrowers are delinquent or in default on their student loans. The U.S. Department of Education’s website explains that there are 10 servicers nationally for federally held student loans, but additional servicers for private student loans. Given the magnitude of this industry, it is not surprising that the CFPB has decided it will exercise its Congressional mandate to consider and make rules governing consumer financial markets in the area of student loan servicing.
The CFPB’s announcement provides minimal details about what proposed rules might be in the pipeline. However, in the September Report, the CFPB identified a number of problematic areas in student loan servicing, including consistency, accountability, and transparency. For consistency as well as more clear and consistent expectations, the September Report proposed industry baseline standards for conduct related to common market features. In terms of accountability, the September Report explained that there were universal issues with error resolution between servicers and borrowers, and suggested servicers consider robust quality assurance and compliance management functions. As for transparency, the September Report proposed periodic public reporting of servicer-level data on student loan performance and looking to other industries for guidance – specifically the mortgage industry. All of these issues suggest potential targets of the CFPB’s rulemaking.
The CFPB is also hinting that it might consider proposing rules concerning consumer disclosures and the specific acts or practices of student loans servicers, rules that are common to the mortgage industry.
While the CFPB has not provided additional information or proposed rules, the Consumer Financial Services Brief expects that student loan servicing issues will be on the next CFPB rulemaking agenda in the spring.
The CFPB’s Fall 2015 rulemaking agenda also discusses other areas of potential rulemaking, including its current initiative exploring arbitration clauses in consumer finance contracts, potentially barring class action bans.