WASHINGTON – The government’s consumer finance watchdog wants stricter oversight of companies that collect and log student loan payments.
The Consumer Financial Protection Bureau proposed Thursday that it supervise the activities of nonbank student loan companies — a more stringent form of regulation than these companies have faced in the past. The bureau says the scrutiny is needed to ensure borrowers aren’t mistreated as the industry grows and more people fall behind on their payments.
“Our rule would bring new oversight to the student loan market and help ensure that tens of millions of borrowers are not treated unfairly,” CFPB Director Richard Cordray said in a statement.
Nonbank loan servicers like Sallie Mae collect payments for both private and government-backed student loans. Borrowers have complained that the companies lose paperwork, fail to apply payments and provide poor customer service.
The bureau wants to oversee the seven biggest nonbank student loan collection companies. Together, they handle the accounts of 49 million people with student loans. The CFPB says that accounts for “most of the activity” in the market.
The bureau already supervises student loan collections by big banks. By adding nonbanks to the supervision program, the CFPB would help even the playing field for banks and nonbanks. Banks say scrutiny of their student loan activities adds costs unfairly, while nonbank companies perform the same services without the added compliance costs.
Supervision by the CFPB amounts to having a government overseer peering over companies’ shoulders as they conduct regular business. The bureau will monitor the companies and examine their internal procedures, data and any other information they seek in an effort to enforce consumer protections. Supervisors can demand vast amounts of information from companies to determine if they are following consumer protection laws, even if there is no indication that the company did anything wrong.