The Consumer Financial Protection Bureau wants stricter supervision of companies that collect student loan payments. The bureau proposed the supervision of the activities of nonbank student loan firms. It said that the inquiry is needed to make sure that borrowers are treated fairly as the industry grows and more people can’t make their payments on time.
Nonbank loan servicers such as Sallie Mae collect payments for private and government-backed student loans. Borrowers are complaining that some companies lose paperwork, give poor customer service, and fail to apply payments.
The Consumer Financial Protection Bureau wants to supervise the seven largest nonbank student loan collection companies. When combined, the companies handle the accounts of 49 million people with student loans. The CFPB said that the accounts make up the most activity in the market.
At present, the CFPB supervises student loan collections by big banks. The playing field for banks and nonbanks will be even if the bureau is allowed to supervise nonbanks. Banks said that scrutiny of their student loan activities results to additional costs. Nonbank firms perform the same services without additional compliance costs.
Once the CFPB is allowed to supervise nonbank companies, the bureau will monitor the companies and probe their internal procedures and other data to enforce consumer protections. Supervisors can request information from companies to determine if they are in line with consumer protection laws. They can do this even if there are no signs that the company is doing something wrong.
The Consumer Financial Protection Bureau is the first federal supervisor for several industries that includes payday loan companies, mortgage companies, private student lenders, debt collectors, and credit bureaus. It is created as part of the Dodd-Frank Act that is designed to protect consumers from unfair fees, predatory loans, and other threats to the consumers. Before the CFPB was created, regulators had to look into companies’ financial strength.