The bureau is updating its supervisory exam procedures for private education loans.
01/24/2022 2:30 P.M.
2 minute read
The Consumer Financial Protection Bureau will begin examining the operations of post-secondary schools, such as for-profit colleges, that extend private loans directly to students, according to a Jan. 20 news release.
The bureau’s exam procedures will include a new section on institutional student loans.
“As the CFPB begins its supervision, the exam procedures inform industry about practices that CFPB examiners will review, including placing enrollment restrictions, withholding transcripts, improperly accelerating payments, failing to issue refunds, and maintaining improper lending relationships,” according to the news release.
“Schools that offer students loans to attend their classes have a lot of power over their students’ education and financial future,” said CFPB Director Rohit Chopra in the news release. “It’s time to open up the books on institutional student lending to ensure all students with private student loans are not harmed by illegal practices.”
Private education loans are extensions of credit made to students or parents to fund undergraduate, graduate, and other forms of postsecondary education.
These loans may be offered by banks, nonprofits, nonbanks, credit unions, state-affiliated organizations, and institutions of higher education, including both for-profit schools and nonprofit schools.
These loans are typically not affiliated with federal student loan programs administered by the U.S. Department of Education. When the loans are made directly to students by the school they attend, they are often referred to as institutional student loans.
Schools have not historically been subject to the same servicing and origination oversight as traditional lenders.
In the mid-2000s, many lenders and institutions of higher education were caught engaging in kickback arrangements that gave schools the incentive to steer students into certain loans. Congress later enacted reforms to student loan disclosures and prohibited certain practices, according to the CFPB.
Congress also gave the CFPB supervisory authority over entities that originate private education loans, including institutional loans.
When examining institutions offering private education loans, in addition to looking at general lending issues, examiners will review the facts around certain actions only schools can take against their students.
CFPB examiners will be looking at if schools are placing enrollment restrictions on students, withholding transcripts, improperly accelerating payments, failing to issue refunds and maintaining improper lending relationships.
The Education Loan Exam Procedures manual is intended for use by CFPB examiners, and the bureau makes it available to serve as a resource to anyone subject to its exams. These procedures will be incorporated into the CFPB’s general supervision and examination manual.
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