|[December 09, 2013]
Fitch: CFPB U.S. Student Loan Servicer Plan Will Bump Costs
NEW YORK --(Business Wire)--
The seven largest student loan servicers have the capacity to weather
the increased operating costs brought on by the new oversight of the
Consumer Financial Protection Bureau (CFPB), Fitch Ratings says.
The bureau also may subject smaller servicers to supervision if it finds
they pose a risk to consumers. We believe oversight for smaller
servicers would be much more difficult for them to manage as they have
fewer resources than the largest servicers. This change may further
trigger consolidation in the industry as economy of scale becomes even
more critical for these servicers.
The seven largest servicers of federal loan programs are overseen by the
Department of Education. The CFPB's supervision will be distinct from
the department's. It will include examinations and will ensure that
servicers follow all federal consumer financial laws. In Fitch's view,
the servicers' existing infrastructure will require only moderate
changes, if any, to comply with additional CFPB oversight. Servicers may
benefit from oversight as it could reduce the number of costly lawsuits
based on deficiencies in compliance.
The CFPB oversight applies to nonbank servicers of more than one million
accounts. Smaller servicers are also subject to the bureau's enforcement
if warranted. Higher compliance costs and a threat of new regulations
will likely create entry barriers for new entrants and force some
existing players to exit the business, acceleratng consolidation in the
Over the long run, Fitch believes that CFPB may provide guidance to
servicers on prepayment strategies that could impact lenders' profits.
The bureau solicited ideas for rules from borrowers. As part of this
process, it received several complaints regarding the procedure for
prepayments in which prepayments were spread evenly across all loans
instead of being applied to the highest interest rate loans first.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include
hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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