CFPB revises student loan examination procedures

by Ballard Spahr LLP
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In conjunction with issuing its final “larger participant” rule for student loan servicers last week, the CFPB also revised its education loan examination procedures. The revisions are intended to provide more extensive guidance for examiners to follow when examining student loan servicing by entities subject to the CFPB’s supervisory authority, whether banks or private student loan lenders who are already subject to CFPB supervision or servicers who will be subject to CFPB supervision as “larger participants” effective March 1, 2014.

Key revisions include the following:

  • A new overview section on student loan servicing has been added that discusses the various types of student loans and servicers that comprise the student loan servicing market and the various activities performed by servicers.
  • The documents examiners are directed to obtain and review, as applicable, are expanded to include loan servicing contracts, loan transfer policies and procedures, payment posting and allocation policies and procedures, policies and procedures relating to alternative repayment plans, including income-based repayment plans, deferment, forbearance, and public service loan forgiveness.
  • Servicing-related guidance that previously applied to examinations of lenders has been expanded to apply to all examinations of student loan servicing, whether by lenders or entities that only engage in servicing.
  • The procedures now note that in assessing risks to consumers in connection with repayment status and payment processing by a servicer, an examiner may find evidence of violations of or an absence of compliance procedures with respect to laws other than Regulation E. Examiners are instructed to identify such matters for appropriate action, such as possible referral to federal or state regulators. As an example, the procedures reference the requirement in the Servicemembers Civil Relief Act for servicers, under certain conditions, to reduce a servicemember’s interest rate to 6 percent.
  • The procedures now also direct an examiner to determine whether and how a servicer communicates with borrowers about possible alternative payment arrangements and expands the instructions to examiners dealing with a servicer’s handling of deferments, income-based repayment plans, forbearance and other benefits such as loan forgiveness programs to cover the federal Direct Loan program in addition to FFLEP loans.

To identify the revisions made by the CFPB, we created a blackline copy of the revised procedures that compares the revised procedures to the previous version. On December 18, Ballard lawyers will be conducting a webinar on the new larger participant rule, “Is It the School of Hard Knocks for Larger Student Loan Servicers?” The webinar will include a discussion of the revised examination procedures. More information and a registration form is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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