Last Thursday, the CFPB announced plans to expand its regulatory reach to cover non-bank institutions that service loans for the estimated $1.1 trillion student loan market. The announcement comes at a time when outstanding student loan debt is the largest category of non-mortgage debt in the United States. The proposed Defining Larger Participants of the Student Loan Servicing Market Rule, would, according to Director Cordray, “bring new oversight to this market and give the Bureau visibility into the complete cycle of student loan debt, from origination through servicing to debt collection and credit reporting.” The proposed rule would increase the CFPB’s authority to cover the seven largest non-bank servicers, which maintain accounts for approximately 71 to 94 percent of the student loan market. Such servicers include three of the largest that contract with the Department of Education: Sallie Mae, Great Lakes Education Loan Services, and Nelnet. The proposed rule would cover both federal and private student loans.
The proposed rule comes as no surprise given the CFPB’s ongoing collection of complaints from borrowers regarding the servicing of student loans. The CFPB specifically cited the growing number of complaints it has received from borrowers regarding servicers as one of the primary reasons for expanding its reach to non-bank servicers.
Key provisions of the proposed rule grant the CFPB with the authority to:
- Gather reports from and conduct examinations of servicers’ processes, data analysis, on-site examinations, and regular communication with supervised entities, as well as follow-up monitoring.
- Ensure the servicers comply with federal consumer financial laws, including Fair Credit Reporting Act, Fair Debt Collection Practices Act, Electronic Fund Transfer Act, and Equal Credit Opportunity Act.
- Supervise the entire life of private student loan accounts from origination through servicing.
Once the proposed rule is published in the Federal Register, the public will have 60 days to comment.