Consumer bureau sets sights on student loan servicers

The Consumer Financial Protection Bureau (CFPB) is flexing its muscles with a new proposal for expanded oversight of student loans.

“The student loan market has grown rapidly in the last decade, and servicers are now facing the stress of an increasing number of delinquent borrowers,” said CFPB Director Richard Cordray. “Our rule would bring new oversight to the student loan market and help ensure that tens of millions of borrowers are not treated unfairly.”

The CFPB sent a proposed regulation to the Federal Register on Thursday to bring student loan services under their supervision. The bureau said the proposals “would not impose new substantive consumer protection requirements,” and noted that the oversight powers were authorized by the Dodd-Frank law.

Student loan servicers process a borrower's loan payments for lenders and work on the behalf of banks to answer questions from borrowers and send out financial statements.

“Many servicers perform their functions well,” the CFPB said in a statement, but “when problems arise because of servicing concerns, student loan borrowers may end up in trouble.”

The agency recently finished a report that found student lenders were often frustrated, confused and given the runaround by some loan servicers, who made errors with no attempts to correct them, or didn’t know how to properly answer the borrower’s questions.

Only large, non-bank entities would be subject to the bureau’s supervision, CFPB said. It defined “large” as a financial institution that handled more than one million accounts in a calendar year.

“The CFPB will continue to coordinate closely with the U.S. Department of Education, which conducts reviews of companies handling loans in accordance with the federal student aid program,” it said.

Comments will be due within 60 days after the proposal is officially published in the Federal Register.