CFPB Proposes Rule to Supervise Nonbank Student Loan Servicers

Posted on March 18th, 2013 in Consumer Finance, Federal Issues By BuckleySandler

On March 14, the CFPB proposed a rule to allow it to supervise “larger participant” nonbank student loan servicers. The CFPB has authority to supervise, regardless of size, nonbanks that originate private education loans, and can define and supervise larger participants in other markets for consumer financial products or services. The CFPB proposes to supervise any nonbank student loan servicer whose volume exceeds one million accounts, which the CFPB expects will cover the seven largest servicers. The CFPB’s test to determine volume would consider the number of accounts serviced, whether for federal or private loans, for which an entity and its affiliated companies were responsible as of December 31 of the prior calendar year. After designation, a servicer would remain a larger participant until two years after the first day of the tax year in which the servicer last met the account volume test. The CFPB would use its existing student loan examination procedures to review larger participants’ “student loan servicing,” which the proposed rule defines as: (i) collecting and processing loan payments on behalf of holders of promissory notes, (ii) maintaining account records and communicating with borrowers on behalf of loan holders during deferment periods, and (iii) interacting with borrowers to facilitate collection and processing of loan payments. An entity notified that the CFPB intends to undertake supervisory activity would have an opportunity to challenge the larger participant determination. The CFPB is accepting comments on the proposal for 60 days following publication in the Federal Register.

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