State Regulators Urge Department of Education to Rescind Preemption Policies


The policies are interfering with state regulation of federal student loan servicers and debt collectors, regulators say.

7/8/2021 9:00

The Conference of State Bank Supervisors (CSBS) and North American Collection Agency Regulatory Association (NACARA) are seeking the return of states’ authority to regulate federal student loan servicers and debt collectors.

CSBS and NACARA issued a letter to Education Secretary Miguel Cardona this week applauding recent steps by the Department of Education (DOE) toward recognizing state authority but calling for more action to stop preemption over state regulation, according to a news release from the agencies.

“We are writing to urge the U.S. Department of Education to rescind the policies adopted by the department in recent years claiming preemption or otherwise impairing state regulation of federal student loan servicers and debt collectors,” the letter states.

Under the Trump administration, the DOE enacted policies that stopped state financial regulators from supervising federal student loan servicers and providing consumer protections available under state law, according to the news release.

“We appreciate that the Education Department has indicated that it recognizes state authority. However, more definitive action is necessary to better protect federal student loan borrowers, to allow effective supervision of student loan lenders and to respect the authority of the state system,” CSBS President and CEO John Ryan said in the news release.

The state regulators focused on a request for the DOE “to rescind a notice issued in 2018 that broadly preempts state regulation of federal student loan servicers, to formally recognize that state regulation of federal student loans is independent from federal law and to enable state financial regulators to access federal student loan servicer[s] and debt collection record[s].”

Federal student loan payments are currently on hold through September because of the COVID-19 pandemic. The state regulators say rescinding the preemption policy now is important to ensure borrower protections once the payments resume, according to the news release.

Richard Cordray, who was named chief operating officer of Federal Student Aid under the Biden administration, was also copied on the letter. Cordray is the former director of the Consumer Financial Protection Bureau and the former Attorney General of Ohio, ACA International previously reported.

Projects under Cordray’s leadership at Federal Student Aid are expected to include managing the Department of Education’s student loan forbearance, which is in place until at least Sept. 30, 2021, and another possible extension of the process for borrowers to start paying again.

Read the complete letter from CSBS and NACARA here.