Written by PJ Hoffman, Regulatory Affairs Counsel
In case you haven’t noticed, it seems that everyone has an opinion about private student lending. In just the past few months we have seen regulators, legislators, and news outlets all getting in on the act. If your credit union is involved with private student lending or anticipates entering into the market sometime soon, then you need to be paying attention. After all, today’s reports are tomorrow’s regulations.
The CFPB has had this issue in their sights for a while now. In October 2012, the CFPB’s Student Loan Ombudsman released a report on private student loans that highlighted and summarized information and complaints received by the CFPB concerning the student loan marketplace. Many of the issues centered on frustration about the inability to speak with personnel empowered to negotiate a repayment plan, inability to refinance, and inability to access repayment plans previously advertised. While the CFPB acknowledged that credit unions and other small financial institutions generated very few complaints and that increased participation from those same small institutions might benefit the market, it is incumbent upon us to see that today’s reports are tomorrow’s regulations.
The CFPB has taken it two steps further in focusing on financial products offered to students, which Steve mentioned here on this blog, when they introduced two requests for information on financial products marketed to students through colleges and universities and another on the private student loan market. NAFCU has put out Regulatory Alerts on both available here with comment letters to follow.
Just last week, the CFPB offered a proposed rule to define larger participants of the student loan servicing market. This would extend the CFPB’s supervisory authority to encompass any non-bank and non-credit union that services over 1 million student loans. Although this rule will not affect credit unions directly, it will undoubtedly change the student loan servicing market and therefore any credit union that deals in that market.
The CFPB is not the only regulatory agency keep their eye on private student lending. Our own NCUA just published an article in their March report titled “Understanding The Risks of Private Student Loans” where they warn of upcoming risks to credit unions regarding private student loans. With quotes like “NCUA anticipates private student loan delinquency rates will likely increase in coming years” and “NCUA expects credit unions to establish reasonable concentration limits for a private student loan portfolio to protect against risk” you know that the NCUA is keeping a keen eye on private student lending. It’s not a coincidence that this article is coming out around the same time as the CFPB requests and we need to be sure to read the tea leaves going forward on this issue.
We’ll be keeping you informed as we hear and see new developments but if your credit union is involved with private student lending please be aware of the recent increase in attention by regulators.