The Consumer Financial Protection Bureau has issued a proposal
to supervise nonbank servicers of private and federal student loans who qualify
as "larger participants" in the student loan servicing market. Comments on the
proposal will be due 60 days after its publication in the Federal Register.
The proposal represents an attempt by the CFPB to expand
significantly its supervisory authority over student loan servicers. Because it
already has supervisory authority over larger banks and nonbank private student
lenders, the CFPB can oversee student loan servicing by those entities.
The CFPB's current authority to supervise nonbank private
student lenders, however, does not allow it to supervise nonbank student loan
servicers that do not offer or provide private student loans. The proposal
would allow the CFPB to supervise servicing of private and federal student
loans by such nonbank servicers.
The proposal defines as "larger participants" servicers
with an "account volume" that exceeds 1 million. In general, the number of
accounts attributed to a servicer would correspond to the number of students or
prior students with loans that it is servicing. If a servicer maintains
separate accounts for different loans made to the same student or prior student
and receives separate fees for each such account, however, the servicer would
be deemed to have "one account for each stream of fees to which the [servicer]
Nonbank student loan servicers that qualify as larger
participants would be subject to examination for federal law compliance by the
CFPB. In addition to examining their compliance with federal laws such as the
Fair Credit Reporting Act, the Fair Debt Collection Practices Act, and the
Electronic Fund Transfer Act, such companies should expect the CFPB to
scrutinize their practices under "unfair, deceptive or abusive" standards.
Under the Dodd-Frank Act, the CFPB has authority to
supervise, regardless of size, all nonbank providers of residential mortgage
loans and certain related services, payday loans, and private education loans.
The Dodd-Frank Act also gave the CFPB supervisory authority over nonbank
providers considered to be "a larger participant of a market for other consumer
financial products or services."
The CFPB has already issued final rules defining who is
considered a larger participant in the debt collection and consumer reporting
markets. Dodd-Frank also allows the CFPB to supervise, regardless of size, all
service providers to larger banks or nonbanks supervised by the CFPB. Once the
CFPB establishes its supervisory authority over nonbank student loan servicers,
it will similarly be able to supervise all service providers to such nonbank
Highlights of the proposal include these provisions:
On April 1, 2013, from 12 p.m. to 1 p.m. ET, Ballard
Spahr will hold a webinar, "The CFPB's Proposed Rule Defining Larger
Participants in the Student Loan Servicing Market." More information on
the webinar and a link to register can be found here.
Ballard Spahr's Consumer Financial Services Group has
created a team of lawyers who are already helping nonbanks subject to CFPB
supervision to prepare for their first CFPB examinations. The Group is
nationally recognized for its guidance in structuring and documenting new
consumer financial services products, its experience with the full range of
federal and state consumer credit laws, and its skill in litigation defense and
The Group produces CFPB Monitor, a blog that focuses exclusively on
important CFPB developments. To subscribe, use the link provided to the
For more information, please contact Practice Leader Alan
S. Kaplinsky at 215.864.8544 or firstname.lastname@example.org, John L. Culhane,
Jr., at 215.864.8535 or email@example.com, or Christopher J. Willis at
678.420.9436 or firstname.lastname@example.org.
Copyright © 2013 by Ballard Spahr LLP
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