As student loan delinquencies rise, there are growing fears that borrowers will be treated unfairly by lenders and their servicers. Seeking to get a handle on the situation, the Consumer Financial Protection Bureau (CFPB) wants to extend federal oversight to some so-called "nonbank" student loans.
“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.”
The Bureau already oversees student loan servicing at larger banks. Thew proposed new rule would expand that supervision to certain nonbanks, requiring them to comply with federal consumer financial laws.
The Bureau would ensure that banks and nonbanks are following the same rules in the student loan servicing market. The vast majority of student loan servicing is conducted by nonbank servicers.
Under the rule, any nonbank student loan servicer that handles more than 1 million borrower accounts would be subject to CFPB supervisory authority. With that threshold, the Bureau estimates that it would have authority to supervise the seven largest student loan servicers.
Combined, those seven service the loans of 49 million borrower accounts, representing most of the activity in the student loan servicing market.
The CFPB said it 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.
"Director Cordray and the CFPB team have always been great partners with us, and we have worked together on a number of projects to protect consumers and better support students," said U.S. Education Secretary Arne Duncan. "We look forward to working with them on their efforts to ensure that loan servicers are protecting student loan borrowers."