Looking Over Servicers’ Shoulders

WASHINGTON — In the latest step in its attempts to regulate the student loan market, a federal consumer protection agency is proposing that it will start enforcing laws and regulations governing loan servicers for both federal and private student loans.

The Consumer Financial Protection Bureau announced Thursday that it would extend its oversight to student loan servicers — companies that do not actually loan the money to students, but instead collect the payments from borrowers to send to lenders and are the first line of contact when borrowers are distressed or delinquent. Borrowers don’t choose their servicers, and loans can be transferred from one servicer to another over the life of the loan.

In a proposed rule, the agency, which has the authority to expand the scope of its oversight by identifying "large participants" in consumer financial markets to supervise, said it would begin overseeing student loan servicers that operate independently from banks. (Since it was established, the CFPB has also expanded its areas of oversight to debt collectors and consumer credit reporting agencies.)

The consumer agency has long sought to rein in the private student lending industry, but Thursday’s announcement is its first foray into part of the federal student loan system. Private loans have fewer repayment options, and often higher interest rates, than federal loans, and they’ve frequently been a source of complaints from borrowers.

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