Last week, the CFPB proposed a rule that would bring oversight to the rapidly growing nonbank student loan servicing industry that has experienced an increase in borrower default over the past few years.
“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,” CFPB Director Richard Cordray said. “Our rule would…help ensure that tens of millions of borrowers are not treated unfairly by their servicers.”
The rule would designate some nonbank student loan servicers as “larger participants,” thereby allowing the bureau to supervise their activities. Most student loan servicing is maintained by nonbank providers, and any nonbank student loan servicer that handles more than one million borrower accounts would be subject to enhanced oversight by the CFPB.
Additionally, the rule, which covers most student loan servicing in the U.S., would cover both federal and private loans. The CFPB also plans to work with the U.S. Department of Education, which handles loan servicers and conducts reviews to ensure compliance with federal consumer protection laws.
Student loan borrowers require loan servicers to process payments, provide account and billing information such as monthly statements and answer questions about a loan. A recent CFPB report found that many borrowers, in attempting to repay their student loans, experience difficulty in determining how much they owe, paperwork and payment processing errors and difficulties with unknowledgeable or uncooperative personnel.
The public will have 60 days to comment on the rule from the time it is published in the Federal Register.