The CFPB has issued a proposal to supervise nonbank student loan servicers who qualify as “larger participants” in the student loan servicing market. The CFPB already supervises student loan servicing by larger banks. It also already supervises, without regard to their size, nonbanks that offer or provide private student loans and student loan servicing by such nonbanks. However, that supervisory authority does not include nonbank student loan servicers who do not offer or provide private student loans. The proposal would extend the CFPB’s supervisory authority to nonbank servicers of private and federal student loans that do not also offer or provide private student loans. It would define as “larger participants” any such nonbank student loan servicer that handles more than one million borrower accounts.
The proposal was presaged by critical comments about student loan servicing made in recent months by CFPB officials, who regularly analogized servicing problems faced by student loan borrowers to those experienced by mortgage borrowers. These comments (and the CFPB’s press release announcing the proposal) drew on student loan complaints described the CFPB’s Student Loan Ombudsman first Annual Report.
The proposal is made pursuant to the CFPB’s authority under Section 1024 of Dodd-Frank to supervise nonbank covered persons for compliance with Federal consumer financial laws. In addition to all nonbanks that offer or provide private student loans, Dodd-Frank authorizes the CFPB to supervise, without regard to their size, all nonbank covered persons in the residential mortgage and payday lending markets. Dodd-Frank also authorizes the CFPB to supervise nonbank “larger participants” of markets for other consumer financial products and services. The CFPB has already issued final rules defining who is considered a larger participant in the debt collection and consumer reporting markets. Dodd-Frank also makes service providers to larger banks or nonbanks that offer or provide federal or private student loans subject to CFPB supervision regardless of the service provider’s size.
We will be issuing a legal alert to provide more information on the proposal.