Under a new rule issued by the Consumer Financial Protection Bureau oversight of student loan servicers will be expanded.
Currently the Consumer Financial Protection Bureau oversees student loan servicing at major banks. The bureau will now supervise nonbank student loan servicers that handle more than one million borrower accounts. The loans can be federal or private loans.
Nonbank servicers who are not considered “larger participants” may still be subject to the bureau’s supervisory authority if the bureau has reasonable cause to determine the servicer poses risk to consumers.
According to the bureau more than 40 million Americans with student debt depend on student loan servicers to serve as their primary point of contact about their loans. A loan servicer is different than the actual lender.
A student loan servicer has many functions including managing borrowers’ accounts, processing payments, serving as a direct point of contact to borrowers and assisting borrowers who may be experiencing hardships by offering alternative repayment plans, deferments or a forbearance.
There has been little oversight of servicers when problem arise with borrowers who have concerns. A borrower typically has no control or choice over which company services a loan. Borrower complaints range from missing payments, improper late fees to lost paperwork.
“We have seen especially shameful examples of poor servicing when service members find themselves thwarted by burdensome paperwork and other obstacles,” CFPB Director Richard Cordray said in a prepared statement. “Many of these borrowers did everything right; they worked hard and made years of monthly payments, but still cannot find any help to get out of those high-rate loans.”
Since the bureau began accepting complaints about student loans in March 2012, many consumers have reported problems with loan servicers. When problems arise because of servicing concerns, borrowers can end up in trouble. They may miss a payment, owe more money because of additional interest on principal, or face future difficulties with credit because of a poor payment history.
“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,” CFPB Director Richard Cordray said. “This rule brings new oversight to those large student loan servicers that touch tens of millions of borrowers.”
Under the new rule which takes effect in March 2013, the bureau will oversee nonbank federal and private student loan servicers to ensure compliance with federal consumer financial laws. Servicers found violating consumer financial laws will be subject to enforcement action.
Borrowers that have trouble with their servicers can submit a complaint. For more information, visit: http://www.consumerfinance.gov/students/.