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TMCNet:  Fitch: CFPB U.S. Student Loan Servicer Plan Will Bump Costs

[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 servicing industry.

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.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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