CFPB Preps New, Stricter Oversight of Student Loan Servicers

CFPB Preps New, Stricter Oversight of Student-Loan ServicersUnder proposed rules by the Consumer Financial Protection Bureau, non-bank servicers of student loans will be subject to audits and overall stricter supervision, the CFPB announced Thursday.
These are the companies the bill and collect payments from consumers on behalf of lenders.
Any nonbank student loan servicer that handles more than one million borrower accounts would be considered a “larger participant” and legally subject to the U.S. agency’s supervision.
That threshold covers the seven largest student loan servicers. Combined, they service the loans of nearly 50 million borrower accounts.
The rules would apply to these servicers whether they handle federal or private student loans. Student loan debt is at the $1 trillion crossroad and growing, surpassing U.S. credit card debt.
“Our proposed rule would bring new oversight to this market and give the Bureau visibility into the complete cycle of student loan debt, from origination through servicing to debt collection and credit reporting,” said CFPB Director Richard Cordray. “The exercise of this new authority would help protect millions of student loan consumers from potential dead ends.”
The bureau said it will to monitor servicers and review allegations that borrowers are being misled about their rights to modify terms of their loans, resulting in late fees and ruined credit.
“Student loan servicers can have a profound impact on borrowers and their families,” Cordray said. “Servicers collect payments on loans, work with struggling borrowers on repayment options, and may report borrowers’ activity to credit reporting agencies.”
A servicer is often different than the lender itself, and a borrower has no control or choice over which company services a loan.
Cordray said the CFPB has heard complaints from private student loan borrowers that nobody holds servicers accountable for answering their questions and providing quality customer service.
“So students can find themselves at a dead end – stuck without a clear path forward,” Cordray said.

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