On December 3, 2013, the CFPB issued a rule allowing the Bureau to supervise certain nonbank student loan servicers. Student loans represent the second-largest consumer debt market in the country after mortgage loans, and the two industries face similar problems. For instance, many consumers are seeking student loan modifications, just as many consumers are seeking mortgage loan modifications. In fact, the most common type of consumer complaint the CFPB has received about student loan servicing relates to borrowers trying to adjust their repayment terms in times of hardship. The CFPB estimates that 7 million student loan borrowers are in default on their debt.
Other common complaints about student loan servicing involve payment processing issues, problems with debt collection practices, and general customer service issues. The CFPB has been collecting complaints and analyzing these issues since March 2012. It already oversees student loan servicing at the largest banks. The new rule expands its authority to certain nonbanks.
This new rule amends the CFPB’s regulation that defines nonbank “larger participants” of consumer financial product and service markets by adding a new section to define larger participants of the student loan servicing market. The rule will cover the servicing of both Federal and private student loans, and will allow the CFPB to examine student loan servicers that service one million or more accounts. The private student lending and servicing markets are highly concentrated, so the rule affects fewer than ten companies. These servicers should familiarize themselves with the CFPB’s examination procedures for education loans and prepare for a visit from the Bureau in 2014. The rule becomes effective on March 1, 2014.