The Consumer Financial Protection Bureau today moved to step up its supervision of the student loan market, proposing a rule that would bring the largest non-bank loan servicers under its direct oversight.
Outstanding student loan debt in the United States tops $1 trillion - second only to mortgages in household debt - and delinquency rates have been rising.
The proposed rule would give the CFPB authority to directly supervise non-bank companies if they service more than 1 million student loans. Servicers collect monthly payments, maintain account records and answer questions from borrowers. The rule would cover seven companies that together service 49 million federal and private student loans – about 70 percent of the market.
"Our rule would bring new oversight to the student loan market and help ensure that tens of millions of borrowers are not treated unfairly by their servicers," said CFPB Director Richard Cordray in a conference call with reporters.
Cordray noted that a student loan is often a person's first major financial decision, and that borrowers have no control or choice over who services their debt. "We do not want a college degree to become more burden than blessing," he said, adding that the CFPB's goal is to ensure people "do not face unnecessary obstacles in paying back their loans" and to "provide even-handed oversight of the industry."
However, the proposed rule has a loophole, one that's dictated by the Dodd-Frank Act. That is, the CFPB can supervise "larger participant" non-bank loan servicers, and also has the authority to supervise banks with more than $10 billion in assets, including taking a close look at their student loan portfolios.
But a bank with less than $10 billion in assets falls outside agency jurisdiction. The most notable may be Sallie Mae, which along with its subsidiaries manages or services $234 billion in education loans, according to the company’s website. However, Sallie Mae is also a bank, offering savings accounts, money market funds and certificates of deposits, and so is seemingly exempt from CFPB oversight.
The CFPB does not comment on how its rules might affect specific entities.
The agency will accept comments on its proposed rule for the next 60 days.