CFPB focuses on student loans – especially those made by schools – in latest oversight highlights
On September 29, the Consumer Financial Protection Bureau (CFPB or Bureau) released a special edition of its Oversight Highlights, focusing on student loan servicing. The report contained findings about the federal student loans service that echo many of the Bureau’s recent public comments, but most notably, this edition of Oversight Highlights also focused heavily on loans made by the schools themselves, and the CFPB simultaneously announced that it was updating its exam manual and that it would hold reviews of schools that make their own loans to students. .
The Oversight Highlights follows the CFPB’s announcement earlier this year that it would review the operations of post-secondary schools that provide private loans directly to students. CFPB director Rohit Chopra explained the decision to undertake the review at the time, saying, “Schools that offer students loans to take their courses have a lot of power over education and the future. financial support for their students. It’s time to open the books on institutional student loans to ensure that all students with private student loans are not harmed by illegal practices.
Among other findings of the report, the CFPB found:
- When higher education institutions provide credit, the dual role of lender and educator provides institutions with a range of collection tactics that leverage their unique relationship with the student.
- Some post-secondary institutions resort to the tactic of withholding transcripts from delinquent borrowers.
- Students who cannot obtain transcripts may be barred from future higher education and certain employment opportunities. For these reasons, supervisors determined that this tactic was abusive under the Consumer Financial Protection Act.
- Revenue-sharing agreements, which the Bureau unambiguously calls student loans, can cause borrowers to incur very large APRs or prepayment penalties that may be illegal under the Truth in Lending Act (TILA). or state usury laws.
Along with the issuance of Oversight Highlights, the CFPB has updated its student loan review procedures. The Bureau explained the need for the update as follows:
- The Consumer Financial Protection Act gives it the power to oversee non-banks that offer private student loans, including post-secondary institutions.
- To determine which institutions are subject to the authority of the CFPB, the Consumer Financial Protection Act refers to the definition in Section 140 of the TILA.
- This TILA definition differs from the one used in Regulation Z, which was the definition referred to in the previous manual.
- The new version has been updated to inform reviewers that the Office will use TILA’s statutory definition of private education loan for purposes of exercising its authority.
- Specifically, the new manual instructs examiners that the CFPB may exercise supervisory authority over an institution that expressly grants credit for post-secondary education expenses as long as such credit is not granted, assured or guaranteed under the title. IV of the Higher Education Act 1965, and is not an indefinite or real estate secured consumer credit scheme.
For schools that have their own credit programs, including tuition payment plans and other deferred payment options that may fall under Regulation Z’s definition of “private education loans”, the CFPB sends the clearest signal that it intends to devote special attention to these programs, including the collection practices associated with them. This would certainly be an opportune time for schools to evaluate their institutional loan programs.