CFPB gaining wider clout over student-loan servicers
Companies operating outside of the banking system that process student loan payments will be subject to federal examinations for the first time, the Consumer Financial Protection Bureau said Monday.
Starting March 1, the government watchdog will regulate the seven largest student-loan servicers that process payments for more that 49 million borrower accounts — representing a majority of the market. Sallie Mae, Nelnet, Great Lakes and Ed Financial are some of the firms that will come under the new supervision rule.
Examiners at the bureau will begin assessing whether these nonbank student-loan servicers are complying with federal consumer financial law, including providing borrowers with accurate information and disclosures. They also will investigate whether servicers are applying payments as promised and not charging borrowers unnecessary fees.
The CFPB already supervises banks that process student loan payments, but it will have broader jurisdiction over the servicing industry once the new rule to expand oversight takes effect. The rule affects one out of every five households in the country, according to the CFPB.
The bureau estimates that Americans owe about $1.2 trillion in education debt. Student-loan servicers manage borrowers’ accounts and process their monthly payments. Problems often arise when borrowers fall behind on their payments and seek alternative repayment plans, such as a modification of loan terms or deferment, according to the bureau.continue reading »