Alert March 19, 2013

CFPB Issues Rule to Define “Larger Participants” of the Student Loan Servicing Market

In alignment with its recent focus on the student loan market (see January 10, 2013 Alert), the CFPB announcedproposal to include certain student loan servicers of both Federal and private student loans as "larger participants" subject to its supervision. Under the Dodd-Frank Act, the CFPB has the authority to supervise nonbank "larger participant[s] in markets for other consumer financial products or services." The CFPB has already finalized rules defining "larger participants" of the debt collection and consumer reporting markets (see November 13, 2012 Alert and July 24, 2012 Alert, respectively).

The proposal establishes a test to determine whether a nonbank entity is a "larger participant" of the student loan servicing market. An entity with an "account volume" that exceeds one (1) million will be considered a "larger participant" of the student loan servicing market. "Account volume" is the number of accounts with respect to which a nonbank entity performs student loan servicing, which includes receiving any scheduled periodic payments from a borrower, maintaining account records and communicating with the borrower on behalf of loan holders, as well as interactions with borrowers such as collection and processing of loan payments. The CFPB defines interactions with borrowers broadly to include any interaction with a borrower to facilitate receiving or making of payments or maintaining of account records, such as activities designed to help delinquent borrowers avoid or prevent default. The proposed account volume threshold would ultimately give the CFPB supervisory authority over the 7 largest student loan servicers which are responsible for approximately 71% to 94% of the activity in the student loan servicing market.