NAICU Washington Update

Additional Oversight of Student Loans

December 17, 2013

Several recent actions indicate that the Consumer Financial Protection Bureau (CFPB) will be taking a more aggressive role in its oversight of student loans.

In early December, the Consumer Financial Protection Bureau (CFPB) announced its additional role in overseeing student loans. The new authority allows CFPB “to supervise certain nonbank student loan servicers for the first time.” CFPB currently reviews student loan servicing at the largest banks but the expansion will bring that supervision to any nonbank student loan servicer that handles more than one million borrower accounts. The rule was proposed last March and will cover seven of the largest nonbank servicers of federal and private student loans. It has been estimated that these “larger participants” service more than 49 million borrower accounts.

Through responsibilities for consumer protection, the CFPB has supervisory authority over many nonbank financial entities, including mortgage originators, payday lenders, debt collectors, private student loan originators, and smaller-size nonbank servicers that pose a risk to consumers. Earlier this year, CFPB collected borrowers’ complaints about private student loan servicers. While it found that most servicers performed well, a number of borrowers expressed concern over servicers’ practices such as applying payment in excess of what was due across all their loans rather than to the loan with the highest interest rate.

Given the increased volume of student loans in recent years, the CFPB said the new rule should enable it to better “evaluate the extent and scope of problems consumer face when dealing with larger nonbank student loan servicers.” Concern about student loans, particularly private student loans that generally carry higher interest rates and less generous repayment terms, has also led Senators Dick Durbin (D-IL), Elizabeth Warren (D-MA), Barbara Boxer (D-CA), and Jack Reed (D-RI) to introduce legislation to reform disclosure and servicing stands for both federal and private loans. The bill, S. 1803, is referred to as a “Student Loan Borrower Bill of Rights.” Part of the bill details regulations for servicing private student loans, which make up about 14% of outstanding debts (and an even smaller share of new loans).

In more recent action, on December 17, the CFPB urged financial institutions to publically disclose agreements with colleges to market debit and prepaid products to students. Despite acknowledging that such products might be beneficial to students, CFPB Director Richard Cordray characterized such arrangements as kickbacks. Credit card arrangements between colleges and banks have already been regulated and CFPB reported that the practice has declined. NACUBO provided guidance on this issue a year ago and last spring provided information about the use of such arrangements on campuses.

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