The Consumer Financial Protection Bureau (CFPB) proposed a new rule today that would allow it to oversee nonbank student loan servicers for the first time, expanding its federal supervision of what is defined as “larger participants” in the student loan market.
The proposed rule change would impact any nonbank student loan servicer that deals with more than 1 million borrower accounts. Student loan services have broad power in the student loan process, as they can collect payments, maintain records of loan payments, report borrower activity to consumer reporting agencies, and assist borrowers in finding alternative payment options.
Despite the immense control these companies often have, borrowers are unable to choose for themselves the student loan servicer with whom they wish to work. The majority of student loan servicers are nonbank entities.
The CFPB estimates that the rule would allow it to supervise the seven largest student loan servicers, who provide loan services for approximately 49 million borrowers. Although some of these services are providing borrowers with the information and tools they need, others are failing. Borrowers report confusion, dead ends, and runarounds when dealing with student loan servicers, according to the CFPB.
If implemented, this rule would allow federal oversight by the CFPB to examine the activities of the nonbank services and ensure they are complying with all federal consumer finance laws. Currently, only bank student loan servicers are examined in this respect.
The CFPB will accept public comments for 60 days following the publishing of the rule in the Federal Register. The rule represents a major next step in reducing the burden of student loans on the over 37 million borrowers.
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