WASHINGTON -- The Consumer Financial Protection Bureau proposed a rule today that would give it supervisory authority over certain nonbank student loan servicers, but a special carve-out will exempt all credit unions and student loans CUSOs.
That’s because the bureau, as it did with its new mortgage servicing rules, exempted all small entities from the proposed rule, in this case all entities servicing fewer than one million loans.
This would be the third market in which the Bureau has defined larger participants, after consumer reporting and debt collection, carving-out critical exemptions for credit unions and CUSOs in the process.
Earlier this week CFPB Director Richard Cordray told the Senate Banking Committee the new consumer agency is being careful to carve out credit unions and community banks from new consumer regulations. Cordray, who spoke to CUNA’s Government Affairs Conference last month, said he has met with or spoke at more than 40 credit union and community bank events in recent months and even created separate credit union and community bank advisory boards to help credit unions and community banks steer clear of new regulatory burden.
“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 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.”
The CFPB estimates the one million loan threshold will give it authority to supervise the seven largest student loan servicers, including Sallie Mae, which services loans for hundreds of credit unions. Combined, the seven service the loans of 49 million borrower accounts, representing most of the activity in the student loan servicing market. But it would exempt every credit union, as well as student loan CUSOs like CU Student Choice, Student CU Connect, and private entities like First Marblehead and Lendio.
The proposed rule would cover servicing of both federal and private student loans. 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.
Many servicers perform their functions well. But the Bureau’s recent report on private student loan complaints highlighted some concerns that some borrowers have reported. Some borrowers say that, in trying to pay back their loans, they face: confusion; unknowledgeable contacts; inaccurate paperwork and delays.
Supervision will allow CFPB to evaluate the extent and scope of these issues by directly examining the larger student loan servicers.
The public will have 60 days to comment on the proposed rule after it is published in the Federal Register.
