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More scrutiny for student loan servicers?

By Christina Couch · Bankrate.com
Tuesday, December 3, 2013
Posted: 5 pm ET

In order to help resolve issues borrowers face when paying back student loans, the Consumer Financial Protection Bureau, or CFPB, announced this morning that it will begin supervising the largest non-bank student loan servicing entities which, together, hold tens of millions of federal and private student loan accounts. The new regulation will apply only to non-bank loan-servicing companies, which hold more than 1 million borrower accounts. Combined, these companies account for about 70 percent of all loan-servicing activity outside of the banking sector. The CFPB already oversees banks that offer student loan servicing.

"Borrowers have complained that they had trouble making prepayments or partial payments on their loans. They have also complained that when their loans were transferred between servicers, their paperwork was often lost and processing errors were made that resulted in late fees," director Richard Cordray said in a statement issued by the CFPB. "We know that student loan servicers can have a profound impact on borrowers and their families. So we need to make sure they are complying with federal consumer financial laws."

Going into effect March 1, 2014, the new regulation will impact the seven largest non-bank loan-servicing companies, including Sallie Mae, and comes on the heels of the organization's annual student loan ombudsman report issued this past October which analyzes student loan complaints filed by borrowers. The 2013 analysis of approximately 3,800 complaints found that payment processing problems, difficulty obtaining accurate payoff information on their loans, lost payments and "inappropriate -- and potentially unlawful -- practices directed at military families seeking to repay private student loans" plagued borrowers. A separate report published in October 2012 documented issues servicemen and women faced in understanding the impact of loan payment postponement, taking advantage of military borrower protections and working through processing errors with their loan servicers.

The new regulation seeks to place non-bank servicers under greater scrutiny and more carefully monitor how these entities are complying with federal laws, including the Fair Credit Reporting Act, the Electronic Fund Transfer Act and the Equal Credit Opportunity Act.

For some entities, increased monitoring had already begun. Earlier this year, the FDIC alerted Sallie Mae that it would be issuing an enforcement action against the lending giant for violations of the Servicemembers Civil Relief Act and the Equal Credit Opportunity Act. The CFPB launched its own investigation on a separate matter on Sallie Mae servicing procedures.

The goals of the new oversight are not only to help borrowers eliminate their loans faster, but also to reduce how student loan debt is inhibiting national economic growth, according to CFPB analysts who assert that the $1.2 trillion in outstanding student loan debt is inhibiting borrowers' ability to purchase homes.

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5 Comments
Rick
December 05, 2013 at 6:41 pm

billyvoltn you are wrong about the "illegals". I know since I work and have much experience in this field. They do not qualify for foodstamps, housing, or medical. If they did there wouldn't be so many willing to work for ridiculous low pay and live in unsafe conditions. Unfortunately its American born people that are robbing us.

L Murray
December 05, 2013 at 9:51 am

Not only should the CFBP check into the Servicers of student loans, someone should also be checking into the banks that originate private student loans. They are the real villians with their excessive interest rates.

R Mcdonald
December 05, 2013 at 7:22 am

Started out at a fixed rate locked in for length of
student loan 7 % After accounts went private, someone
somewhere, raised it to 83/4? when I tryed to find out
who decided that, it seems all the collection Mohela JUST HAS
NO IDEA !! Guess I'll just climb a fence and come on over, get a grant for school, and not have to repay it ! Wow good deal

billyvoltn
December 05, 2013 at 12:32 am

These student loan banks non bank service companies exploit student borrower's. when they get behind or leave school early or become unemployed unable to re-pay? This delay pay off set 12 months until work? NO monies repay will charge extra fees and drops to collections who adds more interest and more fees collections? Student loan $1,000.00 soon jumps to $2,000.00 + in a Year and keeps rolling? Federal Government strong arm your Tax Refunds Bank Accounts with No Real Due Process because they are the Government out of Control? Illegals in Country given Free medical housing food stamps plenty of monies?