The CFPB announced Tuesday that nonbank student loan servicers will be subject to federal examinations for the first time starting on March 1, 2014.
NAFCU told Credit Union Times that the new rule levels the playing field for credit unions.
“The bureau currently oversees student loan servicing at the largest banks. Today’s rule expands that supervision to any nonbank student loan servicer that handles more than one million borrower accounts, regardless of whether they service federal or private loans,” said a press release from the CFPB.
“Under the rule, those servicers will be considered ‘larger participants,’ and the bureau may oversee their activity to ensure they are complying with federal consumer financial laws,” the CFPB also said.
The CFPB updated its “Supervisory and Examination Manual” to provide guidance on the bureau’s process of monitoring bank and nonbank private and federal student loans servicers.
The rule gives the CFPB authority to supervise the seven largest student loan servicers, including Sallie Mae, Great Lakes, Nelnet and Ed Financial.
“Combined, those seven service the loans of more than 49 million borrower accounts, representing most of the activity in the student loan servicing market,” the CFPB said.
“Student loan borrowers should be able to rest assured that when they make a payment toward their loans, the company that takes their money is playing by the rules,” said CFPB Director Richard Cordray.
With its new authority, the CFPB said it is able to better evaluate the extent of the problems consumers face when dealing with large nonbank student loan servicers.
“The student loan market has grown rapidly in the last decade and is now facing the stress of increasing numbers of borrowers who are struggling to stay current on their loans,” said the CFPB.
“This rule gives the bureau visibility into the complete cycle of private student loan debt, from origination through servicing to debt collection and credit reporting.”
NAFCU said the new rule helps ensure all servicers are playing by the same rules.
“The final rule includes no new supervision requirements for credit unions, as NAFCU has advocated. This rule will help reign in the bad actors that were previously unregulated,” PJ Hoffman, regulatory affairs counsel at NAFCU, told Credit Union Times.
“This will create a more level playing field for credit unions who continue to provide the gold standard for member service and student loan servicing,” he added.
Paul Gentile, executive vice president of communications at CUNA, said he does not think the new rule is going to have an effect on credit unions at this time.
According to the NCUA, total student loan delinquency for credit unions in their portfolios is 1.46% compared to 5.4% in the private market.
Federal student loan programs currently make up more than 85% of the total volume of outstanding student loans, which are serviced by private financial institutions subject to federal consumer financial laws.
“The CFPB will continue to coordinate closely with the U.S. Department of Education, which now directly originates the vast majority of federal student loans in accordance with the program requirements in the Higher Education Act,” said the release.