December 18, 2013 by Latasha Myers
The Consumer Financial Protection Bureau (CFPB) issued a new rule that puts the seven largest non-bank student loan servicers under its supervisory jurisdiction. Student loan servicers are third-party companies such as Sallie Mae, Great Lakes Educational Loan Services, Nelnet Servicing and the Pennsylvania Higher Education Assistance Agency that manage borrowers account and process their monthly payments. Under this new rule, they will join banks that service student loans in being regulated by the CFPB. According to the Washington Post this means:
“Examiners at the bureau will begin assessing whether these nonbank student-loan servicers are complying with federal consumer financial law, including providing borrowers with accurate information and disclosures. They also will investigate whether servicers are applying payments as promised and not charging borrowers unnecessary fees.”
The Bureau’s decision to extend federal supervision to non-bank companies that work with borrowers is an important step in ensuring that graduates have a smooth transition into repaying their student loans. Non-bank loan servicers manage more than 70 percent of all unpaid student loan debt. Ensuring that they are doing so in a way that best serves the interest of student borrowers is critical.
The impetus for this new rule were the borrower complaints that CFPB received about the unfair tactics these companies employed when collecting payment. For example, student borrowers reported to the CFPB that when they tried to make advanced payments on their loans they were propelled into a "paid ahead" category, sometimes having payments applied to their next month’s bill instead of allowing the borrower to pay down their principal. As a result, borrowers were having difficulty paying off their debt early and reducing the interest charges they paid.
CFPB’s rule allows the agency to gather reports and examine non-bank student loan servicers to make certain that borrower complaints and actions that are harmful to borrowers are addressed. The most noticeable change for borrowers when the new rule takes effect on March 1st will likely be better customer service. This is a small improvement, but an important one and helpful one for student borrowers. With 1.2 trillion in student loan debt in this country, even small improvements mean a lot. We are happy the CFPB is extending its jurisdiction and hope it will continue to take further steps to address student complaints about their loans and the repayment process.
Cross-posted at Daily Kos