[Federal Register Volume 78, Number 60 (Thursday, March 28, 2013)]
[Proposed Rules]
[Pages 18902-18917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-06291]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1090

[Docket No. CFPB-2013-0005]
RIN 3170-AA35


Defining Larger Participants of the Student Loan Servicing Market

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule; request for public comment.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau or CFPB) 
proposes to amend the regulation defining larger participants of 
certain consumer financial product and service markets by adding a new 
section to define larger participants of a market for student loan 
servicing. The Bureau proposes this rule pursuant to its authority, 
under the Dodd-Frank Wall Street Reform and Consumer Protection Act, to 
supervise certain nonbank covered persons for compliance with Federal 
consumer financial law and for other purposes. The Bureau has the 
authority to supervise nonbank covered persons of all sizes in the 
residential mortgage, private education lending, and payday lending 
markets. In addition, the Bureau has the authority to supervise nonbank 
``larger participant[s]'' of markets for other consumer financial 
products or services, as the Bureau defines by rule. The proposal 
(Proposed Rule) would identify a market for student loan servicing and 
define ``larger participants'' of this market that would be subject to 
the Bureau's supervisory authority.

DATES: Comments must be received on or before May 28, 2013.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form. Because paper mail in the Washington, 
DC area and at the Bureau is subject to delay, commenters are 
encouraged to submit comments electronically. You may submit comments, 
identified by Docket No. CFPB-2013-0005 or RIN 3170-AA35, by any of the 
following methods:
     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments. In general, all comments received 
will be posted without change to their content.
     Mail/Hand Delivery/Courier: Monica Jackson, Office of the 
Executive Secretary, Bureau of Consumer Financial Protection, 1700 G 
Street NW., Washington, DC 20552.
    In addition, comments will be available for public inspection and 
copying at 1700 G Street NW., Washington, DC 20552, on official 
business days between the hours of 10 a.m. and 5 p.m. Eastern Time. You 
can make an appointment to inspect the documents by telephoning (202) 
435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and will be subject to public 
disclosure. Submit only information that you wish to make available 
publicly. Do not include sensitive personal information, such as 
account numbers or Social Security numbers. Comments will not be edited 
to remove any identifying or contact information, such as name and 
address information, email addresses, or telephone numbers.

FOR FURTHER INFORMATION CONTACT: Christopher Young, Senior Counsel, 
(202) 435-7408, or Jolina Cuaresma, Attorney-Advisor, (202) 435-9212, 
Office of Supervision Policy, Bureau of Consumer Financial Protection, 
1700 G Street NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Overview

    Title X of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) \1\ established the Bureau on July 21, 
2010. Under 12 U.S.C. 5514, the Bureau has supervisory authority over 
all nonbank covered

[[Page 18903]]

persons \2\ offering or providing three enumerated types of consumer 
financial products or services: (1) Origination, brokerage, or 
servicing of consumer loans secured by real estate, and related 
mortgage loan modification or foreclosure relief services; (2) private 
education loans; and (3) payday loans.\3\ The Bureau also has 
supervisory authority over ``larger participant[s] of a market for 
other consumer financial products or services,'' as the Bureau defines 
by rule.\4\
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    \1\ Public Law 111-203 (codified at 12 U.S.C. 5301 et seq.).
    \2\ The provisions of 12 U.S.C. 5514 apply to certain categories 
of covered persons, described in subsection (a)(1), and expressly 
exclude from coverage persons described in 12 U.S.C. 5515(a) or 
5516(a). ``Covered persons'' include ``(A) any person that engages 
in offering or providing a consumer financial product or service; 
and (B) any affiliate of a person described [in (A)] if such 
affiliate acts as a service provider to such person.'' 12 U.S.C. 
5481(6).
    \3\ 12 U.S.C. 5514(a)(1)(A), (D), (E). The Bureau also has the 
authority to supervise any nonbank covered person that it ``has 
reasonable cause to determine, by order, after notice to the covered 
person and a reasonable opportunity * * * to respond * * * is 
engaging, or has engaged, in conduct that poses risks to consumers 
with regard to the offering or provision of consumer financial 
products or services.'' 12 U.S.C. 5514(a)(1)(C). In addition, the 
Bureau has supervisory authority over very large depository 
institutions and credit unions and their affiliates. 12 U.S.C. 
5515(a). Furthermore, the Bureau has certain authorities relating to 
the supervision of other depository institutions and credit unions. 
12 U.S.C. 5516(c)(1), (e). The Bureau notes that one of the Bureau's 
mandates under the Dodd-Frank Act is to ensure that ``Federal 
consumer financial law is enforced consistently without regard to 
the status of a person as a depository institution, in order to 
promote fair competition.'' 12 U.S.C. 5511(b)(4).
    \4\ 12 U.S.C. 5514(a)(1)(B), (a)(2); see also 12 U.S.C. 5481(5) 
(defining ``consumer financial product or service'').
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    This Proposed Rule, if adopted, would be the third in a series of 
rulemakings to define larger participants of markets for other consumer 
financial products or services for purposes of 12 U.S.C. 
5514(a)(1)(B).\5\ The Proposed Rule would establish the Bureau's 
supervisory authority over certain nonbank covered persons 
participating in a market for student loan servicing.\6\
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    \5\ The first two rules defined larger participants of markets 
for consumer reporting, 77 FR 42874 (July 20, 2012) (Consumer 
Reporting Rule), and for consumer debt collection, 77 FR 65775 (Oct. 
31, 2012) (Consumer Debt Collection Rule).
    \6\ The Proposed Rule would describe one market for consumer 
financial products or services, which the Proposed Rule labels 
``student loan servicing.'' The proposed definition would not 
encompass all activities that could be considered student loan 
servicing. Any reference herein to ``the student loan servicing 
market'' means only the particular market for student loan servicing 
identified by the Proposed Rule.
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    The Bureau is authorized to supervise nonbank covered persons 
subject to 12 U.S.C. 5514 of the Dodd-Frank Act for purposes of: (1) 
Assessing compliance with Federal consumer financial law; (2) obtaining 
information about such persons' activities and compliance systems or 
procedures; and (3) detecting and assessing risks to consumers and 
consumer financial markets.\7\ The Bureau conducts examinations, of 
various scopes, of supervised entities. In addition, the Bureau may, as 
appropriate, request information from supervised entities without 
conducting examinations.\8\
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    \7\ 12 U.S.C. 5514(b)(1).
    \8\ See 12 U.S.C. 5514(b) (authorizing the Bureau both to 
conduct examinations and to require reports from entities subject to 
supervision).
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    The Bureau prioritizes supervisory activity at nonbank covered 
persons on the basis of risk, taking into account, among other factors, 
the size of each entity, the volume of its transactions involving 
consumer financial products or services, the size and risk presented by 
the product market in which it is a participant, the extent of relevant 
State oversight, and any field and market information that the Bureau 
has on the entity. Such field and market information might include, for 
example, information from complaints and any other information the 
Bureau has about risks to consumers.
    The specifics of how an examination takes place vary by market and 
entity. However, the examination process generally proceeds as follows. 
Bureau examiners initiate an on-site examination by contacting an 
entity for an initial conference with management, and often by also 
requesting records and other information. Bureau examiners will 
ordinarily also review the components of the supervised entity's 
compliance management system. Based on these discussions and a 
preliminary review of the information received, examiners determine the 
scope of an on-site examination and then coordinate with the entity to 
initiate the on-site portion of the examination. While on-site, 
examiners spend a period of time holding discussions with management 
about the entity's policies, processes, and procedures; reviewing 
documents and records; testing transactions and accounts for 
compliance; and evaluating the entity's compliance management systems. 
As with any Bureau examination, examinations of nonbanks may involve 
issuing confidential examination reports, supervisory letters, and 
compliance ratings.
    The Bureau has published a general examination manual describing 
the Bureau's supervisory approach and procedures. This manual is 
available on the Bureau's Web site.\9\ As explained in the manual, 
examinations will be structured to address various factors related to a 
supervised entity's compliance with Federal consumer financial law and 
other relevant considerations. On December 17, 2012, the Bureau 
released procedures specific to education lending and servicing for use 
in the Bureau's examinations.\10\ If this Proposed Rule is adopted, the 
Bureau also plans to use those examination procedures in supervising 
nonbank larger participants of the student loan servicing market.
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    \9\ CFPB Supervision and Examination Manual (October 1, 2012), 
available at http://www.consumerfinance.gov/guidance/supervision/manual/.
    \10\ CFPB Supervision and Examination Manual, Education Loan 
Examination Manual (December 17, 2012), available at http://files.consumerfinance.gov/f/201212_cfpb_educationloanexamprocedures.pdf.
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    This Proposed Rule would establish a category of covered persons 
that are subject to the Bureau's supervisory authority under 12 U.S.C. 
5514 by defining ``larger participants'' of a market for student loan 
servicing.\11\ The Proposed Rule pertains only to that purpose and 
would not impose new substantive consumer protection requirements. 
Nonbank covered persons generally are subject to the Bureau's 
regulatory and enforcement authority, and any applicable Federal 
consumer financial law, regardless of whether they are subject to the 
Bureau's supervisory authority.
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    \11\ The Bureau's supervision authority also extends to service 
providers of those covered persons that are subject to supervision 
under 12 U.S.C. 5514. 12 U.S.C. 5514(e); see also 12 U.S.C. 5481(26) 
(defining ``service provider'').
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II. Summary of Proposed Rule

    The Bureau's existing larger-participant rule, 12 CFR part 1090, 
prescribes various procedures, definitions, standards, and protocols 
that apply with respect to all markets in which the Bureau has defined 
larger participants.\12\ Those generally applicable provisions, which 
are codified in subpart A, would also be applicable for the student 
loan servicing market described by this Proposed Rule. The definitions 
in Sec.  1090.101 should be used, unless otherwise specified, when 
interpreting terms in this Proposed Rule.
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    \12\ 12 CFR 1090.100-103.
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    As the Bureau has previously explained, it will include relevant 
market descriptions and larger-participant tests, as it develops them, 
in subpart B.\13\ Accordingly, the Proposed Rule defining larger 
participants of the student loan servicing market would become Sec.  
1090.106 in subpart B.
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    \13\ 77 FR 42874, 42875 (Consumer Reporting Rule); 77 FR 65775, 
65777 (Consumer Debt Collection Rule).

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[[Page 18904]]

    The Proposed Rule would be the latest in a series of rules to 
define ``larger participants'' of specific markets for purposes of 
establishing, in part, the scope of coverage of the Bureau's nonbank 
supervision program. The Proposed Rule would define a student loan 
servicing market that would cover the servicing of both Federal and 
private student loans.\14\ Under the Proposed Rule, ``student loan 
servicing'' would mean the collection and processing of loan payments 
on behalf of holders of promissory notes and, during periods when 
payments are deferred, maintaining of account records and communicating 
with borrowers on behalf of loan holders, as well as interactions with 
borrowers that facilitate such collection and processing of loan 
payments and maintaining of account records and communicating with 
borrowers. The Proposed Rule would also set forth a test that 
determines whether a nonbank covered person is a larger participant of 
the student loan servicing market.
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    \14\ As discussed below, student loans include those under Title 
IV of the Higher Education Act of 1965, 20 U.S.C. 1070 et seq., and 
those that are otherwise extended to a consumer in order to pay 
post-secondary education expenses.
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    To identify the larger participants of this market that would be 
subject to the Bureau's supervision authority, the Bureau is proposing 
a test based on the number of accounts on which an entity performs 
student loan servicing. The Proposed Rule would define the criterion 
``account volume,'' which reflects the number of accounts for which an 
entity and its affiliated companies were responsible as of December 31 
of the prior calendar year.\15\ An entity would be a larger participant 
if its account volume exceeded one million. As prescribed by existing 
Sec.  1090.102, any nonbank covered person that qualified as a larger 
participant would remain a larger participant until two years after the 
first day of the tax year in which the person last met the applicable 
test.\16\
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    \15\ Although the Bureau proposes to use account volume as the 
criterion for the student loan servicing market, that criterion is 
not necessarily appropriate for any other market that may be the 
subject of a future rulemaking. As the Bureau explained in the 
Consumer Reporting Rule and the Consumer Debt Collection Rule, the 
Bureau expects to tailor each test to the market to which it will be 
applied. 77 FR 42874, 42876; 77 FR 65775, 65778.
    \16\ 12 CFR 1090.102.
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    Pursuant to existing Sec.  1090.103, a person would be able to 
dispute whether it qualifies as a larger participant in the student 
loan servicing market. The Bureau would notify an entity when the 
Bureau intended to undertake supervisory activity; the entity would 
then have an opportunity to submit documentary evidence and written 
arguments that it was not a larger participant. Section 1090.103(d) 
provides that the Bureau may require submission of certain records, 
documents, and other information for purposes of assessing whether a 
person is a larger participant of a covered market; this authority 
would be available to the Bureau for facilitating its identification of 
larger participants of the student loan servicing market, just as in 
other markets.

III. Legal Authority and Procedural Matters

A. Rulemaking Authority

    The Bureau is issuing this Proposed Rule pursuant to its authority 
under: (1) 12 U.S.C. 5514(a)(1)(B) and (a)(2), which authorize the 
Bureau to supervise larger participants of markets for consumer 
financial products or services, as defined by rule; (2) 12 U.S.C. 
5514(b)(7), which, among other things, authorizes the Bureau to 
prescribe rules to facilitate the supervision of covered persons under 
12 U.S.C. 5514; and (3) 12 U.S.C. 5512(b)(1), which grants the Bureau 
the authority to prescribe rules as may be necessary and appropriate to 
enable the Bureau to administer and carry out the purposes and 
objectives of Federal consumer financial law, and to prevent evasions 
of such law.

B. Proposed Effective Date of Final Rule

    The Administrative Procedure Act generally requires that rules be 
published not less than 30 days before their effective dates.\17\ The 
Bureau proposes that the final rule arising from this Proposed Rule 
would be effective at least 60 days after publication.
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    \17\ 5 U.S.C. 553(d).
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IV. Section-By-Section Analysis

Subpart B--Markets

Section 1090.106--Student Loan Servicing Market
    Proposed Sec.  1090.106 relates to student loan servicing. 
Servicing, in general, is the day-to-day management of loans on behalf 
of loan holders. Servicers' duties typically include, for example, 
maintaining account records, billing borrowers for amounts due, 
collecting and allocating payments, reporting to creditors or 
investors, and pursuing collection and loss mitigation activities with 
respect to delinquent borrowers. The student loan servicing market is 
comprised of entities that service Federal and private student loans 
that have been disbursed to pay for post-secondary education 
expenses.\18\ Students may obtain Federal student loans to fund their 
own post-secondary education expenses; a parent or guardian of a 
student may also obtain certain Federal student loans to fund that 
student's post-secondary education expenses.\19\ A private student loan 
may be available to any individual willing to help secure funding for 
post-secondary education expenses.
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    \18\ Throughout this notice of proposed rulemaking, the terms 
``student loan'' and ``post-secondary education loan'' are used 
interchangeably.
    \19\ See 20 U.S.C. 1078-2 (describing the PLUS program which, 
among other things, permits parents to obtain loans to pay for the 
cost of their children's education). A borrower who has one or more 
outstanding student loans may sometimes take out a new loan to 
refinance and consolidate those existing student loans. For purposes 
of the Proposed Rule, such a refinancing would also be considered a 
student loan.
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    Servicers handle three main types of post-secondary education loans 
on which borrowers still have outstanding balances; only two of these 
categories of loans are still available for new originations. First, 
some outstanding loans were made under the Federal Family Education 
Loan Program (FFELP).\20\ FFELP loans were funded by private lenders, 
guaranteed by State governmental or not-for-profit entities, and 
reinsured by the Federal government. These loans are either serviced by 
the loan holders themselves or serviced pursuant to contracts with the 
loan holders. FFELP loans constituted the vast majority of Federal 
student loans before 2010. Second, pursuant to the 2010 SAFRA Act, 
FFELP ended and the Department of Education became the primary lender 
for Federal student loans, providing loans directly to borrowers under 
the William D. Ford Federal Direct Loan Program.\21\ Direct loans are 
serviced by entities that contract with the Department of Education 
pursuant to Title IV of the Higher Education Act.\22\ These entities 
are known as Title IV Additional Servicers (TIVAS).\23\ Third,

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the student loan market includes private student loans, made without 
Federal involvement. Private student loans are usually serviced by the 
originating institutions, by the TIVAS, or by other nonbank entities.
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    \20\ 20 U.S.C. 1078(b), (c).
    \21\ See Public Law 111-152, Sec. Sec.  2101-2213, 124 Stat. 
1071 (2010). The Direct Loan Program actually began in 1992, see 
Public Law 102-325, 106 Stat. 569 (1992), but Federal Direct loans 
constituted only a small portion of Federal student lending before 
the enactment of the SAFRA Act in 2010. Two additional Federal 
programs under Title IV also authorize student loans. One offers 
grants to those who pledge to become teachers. If the recipients do 
not become teachers, then the disbursed funds are converted from 
grants to loans. See 20 U.S.C. 1070g et seq. A second finances loans 
made directly by certain post-secondary education institutions 
through their financial aid offices. See 20 U.S.C. 1087aa et seq.
    \22\ 20 U.S.C. 1087f(b).
    \23\ Most of the initial Direct loan servicing business went to 
one entity: Affiliated Computer Services, Inc. (ACS). As the 
Department of Education began contracting with additional servicers, 
those additional servicers became Title IV additional servicers. In 
order to avoid confusion, when the Bureau uses the term TIVAS, the 
Bureau means to refer also to ACS, the original servicer of Federal 
Direct loans.
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    The student loan servicing market includes fewer than 50 nonbanks, 
and the market is heavily concentrated at the upper tier.\24\ As 
measured either by unpaid principal balance or by number of borrowers 
with loans being serviced, five nonbanks, the TIVAS, account for 
between approximately 67 percent and 88 percent of activity in the 
market.\25\ There are only a few nonbanks in the middle tier of this 
market, each with slightly greater than 1 percent market share. Many of 
these firms service loans placed with them by smaller nonbanks that are 
in the lowest tier of the market.\26\ Finally, the lowest tier of the 
market has a few dozen smaller nonbanks, each of which has only a 
fraction of a percent in market share.\27\ Many of these smaller 
nonbanks are not-for-profit entities run by States, and at least half 
of them contract to other firms the servicing of the loans for which 
they have servicing rights. Entities in the middle tier of the market 
conduct most of this subcontracted servicing.\28\
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    \24\ The Bureau has estimated entity-level data for student loan 
servicers as of December 31, 2012, based mainly on the 2012 Student 
Loan Servicing Alliance (SLSA) Servicing Volume Survey, to which 
most servicers reported data as of December 31, 2011. To construct 
these estimates, the Bureau augmented the data from SLSA's Servicing 
Volume Survey in several ways. (1) For the servicers that elected 
not to report their servicing information to SLSA, the Bureau 
estimated their servicing volume using Department of Education 
reports, shareholder presentations, and other market information. 
(2) The Bureau forecasted the growth of the largest student loan 
servicers' portfolios of Federal Direct loans on the basis of the 
overall growth in Federal Direct loans of 11.8 percent in 2012. See 
U.S. Department of Education, Federal Student Aid Annual Report, p. 
2 (2012). (3) The Bureau accounted for publicly reported market 
changes, including the Department of Education's borrower volume 
reallocations. (4) The Bureau also included in its estimate of a 
servicer's volume the borrowers for whose loans the servicer 
performs subservicing under contract with other servicers. The 
results of these calculations are entity-level estimates of total 
unpaid principal balance, borrower volume, and loan volume. These 
estimated data are cited hereinafter as ``2012 SLSA Servicing Volume 
Survey, augmented by CFPB estimates.'' Depository institutions and 
credit unions also service student loans, although they would not be 
covered under this Proposed Rule.
    \25\ See 2012 SLSA Servicing Volume Survey, augmented by CFPB 
estimates. As discussed below, the Bureau proposes to use account 
volume as the criterion that would determine whether an entity is a 
larger participant of the student loan servicing market. However, 
the Bureau does not have data directly on servicers' account volume, 
as the Proposed Rule would define the term. The Bureau has therefore 
estimated market share on the basis of both unpaid principal balance 
and number of borrowers.
    For either method, the Bureau's data source presents potential 
uncertainties that make it difficult to produce precise market-share 
figures. Accordingly, the Bureau presents only a range of market-
share estimates. The lower end of the range reflects the Bureau's 
estimate of market share on the basis of unpaid principal balance, 
using the Bureau's estimate of $1.1 trillion in outstanding student 
loan debt as the denominator. However, the Bureau believes SLSA's 
data may underestimate the amount of unpaid principal balance being 
serviced by the TIVAS. In particular, SLSA's data include the 
aggregate unpaid principal balance being serviced by both banks and 
nonbanks. For this reason, the actual market share of TIVAS, 
calculated on the basis of unpaid principal balance as a proportion 
of the balance serviced by nonbank participants in the student loan 
servicing market, may be larger than the lower end of the Bureau's 
range. The upper end of the presented range is the Bureau's estimate 
of market share on the basis of number of borrowers. The Bureau 
believes SLSA's data may underestimate the total number of borrowers 
in the market; the actual market share of the TIVAS may therefore be 
smaller than the Bureau's estimate. However, the Bureau does not 
expect these possible uncertainties regarding market structure to 
alter its conclusions about the operation of the Proposed Rule. As 
discussed below, the approximately seven entities that would qualify 
as larger participants under the Bureau's proposed test engage in 
substantially more market activity than the next largest 
participants, regardless of the details of how participation is 
assessed.
    \26\ See HCERA/SAFRA--Not-For-Profit (NFP) Servicer Program 
documentation, as of Dec. 6, 2012 (showing firms that contract 
servicing rights to other entities), available at https://www.fbo.gov/spg/ED/FSA/CA/NFP-RFP-2010/listing.html.
    \27\ See 2012 SLSA Servicing Volume Survey, augmented by CFPB 
estimates.
    \28\ See HCERA/SAFRA--Not-For-Profit (NFP) Servicer Program 
documentation, as of Dec. 6, 2012 (showing firms that contract 
servicing rights to other entities), available at https://www.fbo.gov/spg/ED/FSA/CA/NFP-RFP-2010/listing.html.
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    Outstanding student loan debt--measured by unpaid principal balance 
at approximately $1.1 trillion as of the end of 2012--is the largest 
category of non-mortgage debt in the United States.\29\ Published 
tuition and fees at public four-year institutions have increased on 
average at an annual rate of 5.2 percent per year above the general 
rate of inflation over the past decade.\30\ In light of the rising cost 
of obtaining post-secondary education, American consumers have 
increasingly turned to student loans to bridge the gap between personal 
and family resources and the total cost of education. In fact, from the 
academic year 2001-2002 to 2011-2012, the average total borrowing per 
student increased by 55 percent.\31\ The average student loan debt for 
2011 graduates was $22,900.\32\ During the last decade, a greater 
proportion of Americans than ever before pursued post-secondary 
education; from fall 2000 to fall 2010, the number of undergraduate 
students increased by 45 percent.\33\ Thus, student loans are not only 
essential for many students to obtain post-secondary education; they 
are a significant part of the nation's economy.
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    \29\ As of September 30, 2012, the total Federal student aid 
loan portfolio amounted to $948 billion. U.S. Department of 
Education, Federal Student Aid Annual Report, p. 2 (2012), available 
at http://www2.ed.gov/about/reports/annual/2012report/fsa-report.pdf. The Department of Education and the Bureau have together 
estimated that American consumers owe more than $150 billion in 
outstanding private student loans. Consumer Financial Protection 
Bureau & Department of Education, Private Student Loans, p. 17 (Aug. 
29, 2012) (report to the Sen. Comm. on Banking, Housing, and Urban 
Affairs, the Sen. Comm. on Health, Education, Labor, and Pensions, 
the H. Comm. on Financial Services, and the H. Comm. on Education 
and the Workforce), available at http://files.consumerfinance.gov/f/201207_cfpb_Reports_Private-Student-Loans.pdf. The Federal 
Reserve Bank of New York, using different data and methodology, 
separately estimates that outstanding student loan debt was $966 
billion at the end of 2012. See Federal Reserve Bank of New York, 
Quarterly Report on Household Debt and Credit, p. 3 (Feb. 2013), 
available at http://www.newyorkfed.org/research/national_economy/householdcredit/DistrictReport_Q42012.pdf
    \30\ College Board Advocacy & Policy Center Report, Trends in 
College Pricing 2012, p. 7 (Oct. 2012).
    \31\ College Board Advocacy & Policy Center, Trends in Student 
Aid 2012, p. 4 (Oct. 2012).
    \32\ As reported in Number of the Week: Class of 2011, Most 
Indebted Ever, Wall Street Journal, May 7, 2011.
    \33\ College Board Advocacy & Policy Center, Trends in College 
Pricing 2012, p. 4 (Oct. 2012).
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    Student loan servicers play a critical role in the student loan 
market. Student loan servicers manage interactions with borrowers on 
behalf of loan holders of outstanding student loans. Servicers receive 
scheduled periodic payments from borrowers pursuant to the terms of 
their loans and apply the payments of principal and interest and other 
such payments as may be required pursuant to the terms of the loans or 
of the contracts governing the servicers' work. Typically, student loan 
servicing also involves sending monthly payment statements, maintaining 
records of payments and balances, and answering borrowers' questions. 
When appropriate, servicers may also make borrowers aware of 
alternative payment arrangements such as consolidation loans or 
deferments.
    Student loan servicers also play a role while students are still in 
school. A borrower may receive multiple disbursements of a loan over 
the course of one or more academic years. Repayment of the loan may be 
deferred until some future point, such as when the student finishes 
post-secondary education. A student loan servicer will maintain records 
of the amount lent to the borrower and of any interest that accrues; 
the servicer may also send

[[Page 18906]]

statements of such amounts to the borrower.
    In addition, student loan servicers may collect payments and send 
statements after loans enter default. They may also report borrowers' 
account activity to consumer reporting agencies.
    In short, most borrowers, once they have obtained their loans, 
conduct almost all transactions relating to their loans through student 
loan servicers.\34\ The Proposed Rule would enable the Bureau to 
supervise larger participants of an industry that has a tremendous 
impact on the lives of post-secondary education students and former 
students, as well as their families.
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    \34\ Activities of this type constitute ``servicing loans,'' a 
consumer financial product or service pursuant to the Dodd-Frank 
Act. See 12 U.S.C. 5481(15)(A)(i) (definition of ``financial product 
or service,'' including ``extending credit and servicing loans''); 
see also 12 U.S.C. 5481(5)(B) (definition of ``consumer financial 
product or service,'' including financial products or services 
provided in connection with consumer financial products, like 
education loans, that are provided to consumers).
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Section 1090.106(a)--Market-Related Definitions
    Unless otherwise specified, the definitions in Sec.  1090.101 
should be used when interpreting terms in this Proposed Rule. The 
Proposed Rule would define additional terms relevant to the student 
loan servicing market. These terms would include ``student loan 
servicing,'' the term that delineates the scope of the identified 
market; the terms ``post-secondary education expenses'' and ``post-
secondary education loan''; and ``account volume,'' which the Proposed 
Rule would use as the criterion for assessing larger-participant 
status. The Bureau seeks comment on each of the definitions set forth 
in the Proposed Rule and any suggested clarifications, modifications, 
or alternatives.
    Account volume. As discussed below, the Bureau proposes to use 
account volume as the criterion that would determine whether an entity 
is a larger participant of the student loan servicing market. Proposed 
Sec.  1090.106(a) would define the term ``account volume'' as the 
number of accounts with respect to which a nonbank covered person is 
considered to perform student loan servicing, as calculated according 
to instructions set forth in the proposed regulation and as discussed 
below.
    Account volume, as an initial matter, would be based on the number 
of students or prior students with respect to whom a covered person 
performs student loan servicing. For example, a servicer might service 
a post-secondary education loan made to a student at the beginning of 
the student's time in college and paid back over a number of years 
after the student completed college. As another example, a servicer 
might service a post-secondary education loan made to a parent of a 
student to fund that student's education expenses.\35\ In each of these 
cases, the student whose post-secondary education expenses a loan 
funded would represent at least one account.
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    \35\ For example, under the Federal PLUS loan program, a 
student's parent or guardian may take out a loan to pay the 
student's expenses. See 20 U.S.C. 1078-2. In the private lending 
market, the Bureau understands that, subject to underwriting 
criteria, post-secondary education loans may be available to any 
person who wishes to support a student's education.
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    However, the Bureau is aware that in some situations, a student or 
prior student may correspond to more than one account at a given 
servicer. For example, if a nonbank covered person is servicing a loan 
to a student and also a loan to that student's parent, the servicer 
will maintain separate accounts for the two loans. The student and the 
parent will each receive separate statements regarding their loans, and 
the servicer will remit payments on the loans to their respective 
holders. As another example, a student may receive loans from two 
different originators; or a given originator may securitize loans to 
the student through two different securitization vehicles. These 
different holders of the student's loans may all retain the same 
servicer, who may maintain separate accounts for the different 
loans.\36\ The servicer may send the student one consolidated statement 
or multiple statements, depending on the circumstances and its 
practices; and the servicer will remit payments on the loans to 
different loan holders.
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    \36\ In some instances, student loans that have been securitized 
in the secondary market may have a single loan originator but a 
separate legal holder for each loan. The Bureau understands that a 
securitization sponsor will typically use the same servicer for 
multiple securitizations.
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    To take account of such possibilities, the Bureau proposes to 
count, as an account, each separate stream of fees to which a servicer 
is entitled for servicing a post-secondary education loan with respect 
to a given student or prior student.\37\ The Bureau believes that 
student loan servicers are generally compensated, on a monthly basis, 
at a fixed rate for each account they handle. For Federal Direct loans 
and Federally-owned FFELP loans, this compensation structure is 
determined by contract with the Department of Education, and the 
average fee rate for 2013 is $1.68 per month per account.\38\ For loans 
held by private entities (both private loans and FFELP loans), the rate 
may vary depending on the contracts governing a given servicer's 
business. But the compensation structure appears to be common 
throughout the student loan servicing market.\39\ The Bureau therefore 
expects that counting the number of streams of fees a servicer receives 
for servicing loans with respect to a given student will be an 
appropriate way to represent the scope of the servicer's business with 
respect to that student. The Bureau requests comment on the proposed 
method of counting accounts and suggested alternatives.
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    \37\ Ancillary fees (such as a late payment fee or a 
disbursement fee) that a servicer may receive in particular 
circumstances would not constitute a distinct stream of fees for 
performing student loan servicing.
    \38\ See Title IV Redacted Contract Awards, pp. 12-13, available 
at https://www.fbo.gov/spg/ED/FSA/CA/FSA-TitleIV-09/listing.html. 
The contract fixes monthly compensation on a per-borrower basis, and 
the compensation depends on the repayment status of each borrower 
being serviced. See also Student Aid Administration Fiscal Year 2013 
Request at p. AA-15, available at http://www2.ed.gov/about/overview/budget/budget13/justifications/aa-saadmin.pdf. The Student Aid 
Administration estimates the average cost per-borrower (which is 
equivalent to a servicer's per-account compensation for purposes of 
this Proposed Rule) to be $1.68 per month, based on the contractual 
prices and the proportion of borrowers with different repayment 
statuses.
    \39\ The Bureau recognizes that some covered persons may not 
receive servicing fees on a per-account or per-month basis. For 
example, a covered person may perform student loan servicing for 
loans it originated or holds and may receive no servicing fee or may 
receive servicing fees on a different basis. For a person that does 
not receive fees on a per-account basis, each student or prior 
student would still count as one account under the proposed 
definition of ``account volume.''
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    The number of accounts generally would be counted as of December 31 
of the prior calendar year. In general, a loan originator may open an 
account for a borrower at the beginning of an academic year and then 
disburse funds for the student's expenses at various points throughout 
the year. An originator may allocate the borrower's account to a 
servicer at the beginning of the academic year, even though the 
originator will be making further disbursements. If a servicer is 
responsible for servicing loans with respect to a student as of 
December 31, the corresponding account would be included in the 
calculation of account volume.
    The proposed definition would attribute to a covered person the sum 
of the number of accounts of the person and its affiliated companies. 
Under 12 U.S.C. 5514(a)(3)(B), the activities of affiliated companies 
are to be aggregated for purposes of computing activity levels for 
rules--like this Proposed Rule--under 12 U.S.C. 5514(a)(1). In the 
consumer reporting and consumer debt collection markets, the Bureau

[[Page 18907]]

implemented the aggregation called for by 12 U.S.C. 5514(a)(3)(B) by 
prescribing the addition of all the receipts of a person and its 
affiliated companies to produce the person's annual receipts. The 
Bureau proposes to use a similar calculation in the student loan 
servicing market. The account volume for each nonbank covered person 
would be the sum of the number of accounts serviced by that nonbank 
covered person and the number of accounts serviced by all affiliated 
companies.
    The proposed calculation would add together each account on which 
any affiliated company was providing student loan servicing, even if 
two affiliated companies were servicing post-secondary education loans 
with respect to the same student. For example, if two affiliated 
companies each serviced the loans of the same 10 students, those 
companies' account volume would nonetheless be 20.\40\ The Bureau 
recognizes that other methods of aggregation may also be appropriate 
for this market. One alternative would be to add, for a group of 
affiliated companies, only those accounts that correspond to unique 
students. Thus, the account volume of the affiliated companies in the 
example above would be 10, rather than 20. If one of the two affiliated 
companies also serviced the loans of an eleventh student, with respect 
to whom the other affiliated company was not servicing any loans, the 
account volume for the companies would be 11--the 10 common accounts 
plus the one additional account. The Bureau seeks comments on each of 
these alternatives as well as other methods of aggregation that might 
be appropriate for this market.
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    \40\ This example assumes that each company is receiving only a 
single stream of fees for each of the 10 students.
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    The proposed definition of number of accounts would establish that 
each person's number of accounts as of the prior calendar year's 
December 31 would be aggregated together where two persons become 
affiliated companies in the middle of a year. The Proposed Rule would 
also provide that, where two affiliated companies cease to be 
affiliated companies in the middle of a year, the account volume of 
each would continue to include the other's number of accounts until the 
succeeding December 31.
    Post-secondary education expenses. Proposed Sec.  1090.106(a) would 
define ``post-secondary education expenses'' to include any of the 
expenses that are included as part of the cost of attendance of a 
student as defined in 20 U.S.C. 1087ll.
    Post-secondary education loan. Proposed Sec.  1090.106(a) would 
define the term ``post-secondary education loan'' to mean an extension 
of credit that is made, insured, or guaranteed under Title IV of the 
Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) or that is 
extended to a consumer with the expectation that the funds extended 
will be used in whole or in part to pay post-secondary education 
expenses. As noted above, a loan may be made to a parent or guardian, 
or to another consumer, to fund the post-secondary education expenses 
of a student who is not a borrower of that loan. Such a loan would be 
within the defined category of post-secondary education loans. Loans 
for refinancing or consolidating post-secondary education loans would 
also be considered post-secondary education loans.
    The term would exclude any extension of credit under an ``open-end 
credit'' plan, as defined by the Bureau's Regulation Z, 12 CFR 
1026.2(a)(20). The term would also exclude loans secured by real 
property (such as residential mortgages or reverse mortgages). The 
Bureau recognizes that students and their families may use credit cards 
or home equity lines of credit to finance post-secondary education. 
However, for several reasons, the Bureau believes it may be appropriate 
to exclude these two categories of credit from the defined category of 
``post-secondary education loan.'' First, such loans are typically 
serviced by entities that focus on servicing credit card accounts or 
mortgage loans, respectively. Nonbank entities with such a focus 
ordinarily do not more broadly service loans used for education 
expenses. Second, pursuant to 12 U.S.C. 5514, the Bureau has 
supervisory authority, independent of this Proposed Rule, over nonbank 
covered persons that offer or service loans secured by real estate, 
including home equity loans or lines of credit. The Bureau also has 
supervisory authority regarding large portions of the credit card 
market, through its supervision of very large banks and credit unions 
and their affiliates pursuant to 12 U.S.C. 5515. Third, post-secondary 
education loans differ from these other credit products in various ways 
that may affect the conduct of servicing activities. For example, 
payments on a post-secondary education loan might not be required until 
four or more years after a borrower first receives such a loan. In 
addition, because a post-secondary education loan is not open-end, a 
servicer is not handling revolving balances. And, unlike a home equity 
line, a post-secondary education loan is typically not secured.
    Student loan servicing. Proposed Sec.  1090.106(a) would define the 
term ``student loan servicing'' to mean receiving any scheduled 
periodic payments from a borrower pursuant to the terms of any post-
secondary education loan, and making the payments of principal and 
interest and other amounts with respect to the amounts received from 
the borrower as may be required pursuant to the terms of the post-
secondary education loan or of the contract governing the servicing; 
or, during a period when payment on a post-secondary education loan is 
deferred, maintaining account records for the loan and communicating 
with the borrower regarding the loan, on behalf of the loan's holder. 
The proposed definition would also make clear that student loan 
servicing includes interactions with a borrower to facilitate such 
activities.\41\
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    \41\ Interactions to facilitate the collection of payment from a 
borrower who has defaulted on a post-secondary education loan would 
also constitute student loan servicing.
---------------------------------------------------------------------------

    Among the interactions that would constitute student loan servicing 
are activities to help delinquent borrowers avoid or prevent default on 
obligations arising from post-secondary education loans. For example, a 
servicer might negotiate a modified payment plan for a borrower who 
cannot afford the payments scheduled under the original terms of the 
loan. The Bureau regards default prevention activities as closely 
connected to the core aspects of student loan servicing--collecting and 
remitting payments and maintaining account records and communicating 
with borrowers. The Bureau believes that many student loan servicers 
perform or subcontract default prevention activities for loans that 
they are servicing. Significantly, efforts to prevent default on post-
secondary education loans can help save borrowers from the serious 
consequences resulting from default, which can include the accrual of 
thousands of dollars in penalties and fees. Default on a Federal 
student loan has an additional deleterious consequence: A loan in 
default cannot qualify for income-based repayment, an alternative plan 
under which a low-income borrower may be able to reduce his or her 
monthly payments. Conducted in accordance with applicable law, default 
prevention can help protect consumers from certain risks. The Bureau 
expects to assess those risks in its supervision of larger participants 
of the student loan servicing market.

[[Page 18908]]

Section 1090.106(b)--Test to Define Larger Participants
    Criterion. The Bureau has broad discretion in choosing a criterion 
for determining whether a nonbank covered person is a larger 
participant of a market within which the Bureau will conduct 
supervision. For any specific market, there might be several criteria, 
used alone or in combination, that could be viewed as reasonable 
alternatives. For the student loan servicing market, the Bureau is 
considering a number of criteria, including the total amount of unpaid 
principal balance on student loans handled by a servicer; the number of 
student loans serviced; and account volume, which, as discussed in the 
preceding subsection, refers to the number of accounts on which a 
person is considered to perform servicing. The Bureau invites comment 
on all three possible criteria as well as suggestions for other 
criteria that commenters believe might be superior.
    Among these three, the Bureau proposes to use account volume as the 
criterion that determines which entities are larger participants of the 
student loan servicing market. A discussion of the definition of 
``account volume'' is set forth above. The Bureau expects that account 
volume will be an appropriate criterion because, among other things, it 
is a meaningful measure of a student loan servicer's level of 
participation in the market and of the servicer's impact on consumers. 
First, the number of accounts on which a person performs servicing 
reflects the magnitude of the student loan servicer's interactions with 
consumers.\42\ Each account represents a regular series of interactions 
with at least one consumer. Second, because account volume is defined, 
in part, in terms of how many streams of fees a servicer receives with 
respect to a given student, the account volume criterion would 
correlate to the amount of compensation a person receives for its 
student loan servicing (and also to receipts and other comparable 
measures of market participation).
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    \42\ Although student loan servicers may interact with co-
signers as well as borrowers, the Bureau believes that the former 
interactions are less frequent compared to servicers' interactions 
with borrowers. A servicer typically deals with a co-signer only 
when the borrower has failed to make payments. The Bureau expects 
that a servicer's level of interaction with borrowers who are 
current with their payments is about the same regardless of the 
balance on a loan or whether the loan is Federal or private. 
Servicers may have more intensive interactions with borrowers who 
are in default or near or at risk of default. For such borrowers, 
the character and quality of servicers' interactions may depend in 
part on the amount and type of the loans involved. However, the 
Bureau has no information suggesting that the proportion of loans in 
default varies substantially among servicers. Account volume should 
therefore appropriately reflect the comparative amount of consumer 
impact of various servicers.
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    The Bureau anticipates that account volume would be a relatively 
straightforward quantity for a student loan servicer to calculate, as 
the occasion to do so arises. Most market participants already assemble 
data on the number of loans they service and the number of borrowers of 
those loans. Many student loan servicers are members of the Student 
Loan Servicing Alliance (SLSA), a trade organization, and report the 
sizes of their servicing programs to SLSA annually on both those 
bases.\43\ The Bureau's proposed account volume criterion would not 
necessarily be the same, for any particular servicer, as its number of 
loans or number of borrowers. But in general, because any student with 
respect to whom a nonbank covered person is performing student loan 
servicing corresponds to at least one account, a nonbank covered 
person's account volume is at least as large as that person's number of 
borrowers. Thus, any student loan servicer whose number of borrowers is 
above the threshold can expect that its account volume will also exceed 
the threshold. As discussed above, the detailed calculation of account 
volume generally reflects the number of accounts for which the servicer 
is receiving fees. The Bureau expects that servicers will readily be 
able to ascertain the latter figure because servicers are presumably 
invoicing and expecting receipts on that basis.
---------------------------------------------------------------------------

    \43\ See e.g., 2012 SLSA Servicing Volume Survey.
---------------------------------------------------------------------------

    The Bureau does not have data directly on servicers' account 
volumes, as defined in this Proposed Rule. However, the Bureau expects 
that the numbers of borrowers that servicers report to SLSA will be an 
adequate proxy to enable the Bureau to analyze the market and select a 
threshold for larger-participant status. The Bureau believes that for 
most firms the number of accounts may not differ substantially, for 
purposes of this analysis, from the number of borrowers; and in general 
the Bureau estimates that a firm's number of accounts is no more than 
50 percent greater than the number of borrowers it reports.\44\ In 
addition, the Bureau has no reason to think the relationship between 
the number of accounts and the reported number of borrowers varies 
substantially among servicers, particularly among the seven largest 
market participants.
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    \44\ To reach this estimate, the Bureau notes that for Federal 
loans (which include Federal Direct loans and Federally-owned FFELP 
loans), each borrower corresponds to exactly one account, because 
the Department of Education compensates servicers based on their 
number of unique borrowers, rather than on their number of loans. 
See Title IV Redacted Contract Awards, Attachment A-6-- Servicing 
Pricing Definitions, available at https://www.fbo.gov/spg/ED/FSA/CA/FSA-TitleIV-09/listing.html. According to SLSA's data, Federal loans 
account for 30 million borrowers at the seven largest firms and 31 
million borrowers market-wide. The remaining borrowers received 
private loans (which include non-Federally-owned FFELP loans and any 
other loan originated privately). The Bureau believes that the 
number of accounts corresponding to those borrowers is unlikely to 
exceed the corresponding number of loans reported by the various 
servicers, because the Bureau is not aware of any servicer receiving 
a separate fee for a unit smaller than a single loan. (The Bureau 
recognizes that because SLSA has not established standards, 
servicers may adopt slightly different methods for counting private 
loans and their borrowers, but the Bureau does not expect the 
variations to be substantial.) Thus, the number of accounts at the 
seven largest market participants is unlikely to exceed 75 million, 
the sum of 30 million borrowers of Federal loans and 45 million 
private loans. That figure is roughly 50 percent greater than 49 
million, the total number of borrowers reported by the seven largest 
market participants. Similarly, the number of accounts market-wide 
is unlikely to exceed 80 million, the sum of 31 million borrowers of 
Federal loans and 49 million private loans.
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    As additional data for the student loan servicing market become 
available to the Bureau, the Bureau may consider other criteria and 
potential revisions to the criterion used in the Proposed Rule.
    Threshold. Under the Proposed Rule, a nonbank covered person would 
be a larger participant of the student loan servicing market if the 
person's account volume exceeded one million. The Bureau estimates the 
proposed threshold would bring within the Bureau's supervisory 
authority about seven student loan servicers. These seven servicers are 
responsible for between approximately 71 and 94 percent of activity in 
the nonbank student loan servicing market.\45\
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    \45\ 2012 SLSA Servicing Volume Survey, augmented by CFPB 
estimates.
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    As discussed above, the Bureau does not have precise data on market 
participants' account volumes calculated in accordance with the 
proposed definition. However, the number of a servicer's accounts, 
under the proposed definition of ``account volume,'' cannot be smaller 
than the number of borrowers whose loans it is servicing. In addition, 
the Bureau believes that in general the number of accounts should be no 
greater than the number of loans a servicer reports to SLSA. These two 
figures therefore provide outer bounds for a given servicer's number of 
accounts. The Bureau notes that according to the 2012 SLSA volume 
survey, seven nonbank entities each serviced the loans of more than one 
million borrowers. Those seven nonbanks would presumably be larger 
participants under the Proposed

[[Page 18909]]

Rule. The next largest market participants report servicing the loans 
of approximately 300,000 borrowers each, and are unlikely to reach the 
one million threshold on the basis of account volume.\46\
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    \46\ As discussed above, the Bureau expects the number of 
accounts at a given servicer to be less than 50 percent larger than 
the number of borrowers. A firm with 300,000 borrowers is therefore 
unlikely to have more than 450,000 accounts. However, the Bureau's 
estimates do not take account of any servicers that do not report 
data to SLSA. These estimates also do not reflect any affiliations 
that may exist among market participants. If two student loan 
servicers that appear to be below the threshold given their reports 
to SLSA are actually affiliated companies, their aggregated account 
volume might render them both larger participants.
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    The Bureau anticipates that the proposed account-volume threshold 
of one million would be consistent with the objective of supervising 
market participants that represent a substantial portion of the student 
loan servicing market and have a significant impact on consumers. The 
seven student loan servicers that would likely be larger participants 
based on the Bureau's proposed threshold collectively service the loans 
of approximately 49 million borrowers.\47\ At the same time, this 
threshold would likely subject to the Bureau's supervisory authority 
only entities that can reasonably be considered larger participants of 
the market.\48\
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    \47\ 2012 SLSA Servicing Volume Survey, augmented by CFPB 
estimates.
    \48\ The median number of borrowers with loans being serviced by 
a given entity is approximately 250,000. The median number of loans 
being serviced is 800,000. The median outstanding principal balance 
being serviced by a given entity is approximately $3.5 billion. 2012 
SLSA Servicing Volume Survey, augmented by CFPB estimates.
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    The Bureau is also considering a lower or higher threshold. For 
example, an account-volume threshold of 200,000 might allow the Bureau 
to supervise between 15 and 18 entities, representing between 
approximately 74 and 99 percent of activity in this market.\49\ 
However, the additional entities that would be included using this 
lower threshold are only a fraction of the size of the middle tier 
market participants.\50\ In comparison, an account-volume threshold of 
three million would likely allow the Bureau to supervise only the five 
very largest participants in the market, representing between 
approximately 67 and 88 percent of activity in this market based on 
unpaid principal balance and number of borrowers.\51\
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    \49\ 2012 SLSA Servicing Volume Survey, augmented by CFPB 
estimates. Three entities reported servicing the loans of between 
133,000 and 200,000 borrowers. Although these entities would be 
below a threshold of 200,000 borrowers, they might qualify as larger 
participants using a threshold of 200,000 accounts. As discussed 
above, the Bureau expects a firm's number of accounts to be no less 
than its number of borrowers and no more than 50 percent greater.
    \50\ 2012 SLSA Servicing Volume Survey, augmented by CFPB 
estimates.
    \51\ 2012 SLSA Servicing Volume Survey, augmented by CFPB 
estimates.
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    The Bureau seeks comment, including suggestions of alternatives, on 
the proposed threshold for defining larger participants of the student 
loan servicing market.

V. Request for Comments

    The Bureau invites comment on all aspects of this notice of 
proposed rulemaking and on the specific issues on which comment is 
solicited elsewhere herein, including on any appropriate modifications 
or exceptions to the Proposed Rule.

VI. Section 1022(b)(2)(A) of the Dodd-Frank Act

A. Overview

    The Bureau is considering potential benefits, costs, and impacts of 
the Proposed Rule.\52\ The Bureau requests comment on the preliminary 
analysis presented below as well as submissions of additional data that 
could inform the Bureau's analysis of the costs, benefits, and impacts 
of the Proposed Rule. In developing the Proposed Rule, the Bureau has 
consulted with or offered to consult with the U.S. Department of 
Education, the Federal Trade Commission, the Board of Governors of the 
Federal Reserve System, the Federal Deposit Insurance Corporation, the 
Office of the Comptroller of the Currency, and the National Credit 
Union Administration, regarding, among other things, consistency with 
any prudential, market, or systemic objectives administered by such 
agencies.
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    \52\ Specifically, 12 U.S.C. 5512(b)(2)(A) calls for the Bureau 
to consider the potential benefits and costs of a regulation to 
consumers and covered persons, including the potential reduction of 
access by consumers to consumer financial products or services, the 
impact on depository institutions and credit unions with $10 billion 
or less in total assets as described in 12 U.S.C. 5516, and the 
impact on consumers in rural areas. In addition, 12 U.S.C. 
5512(b)(2)(B) directs the Bureau to consult, before and during the 
rulemaking, with appropriate prudential regulators or other Federal 
agencies, regarding consistency with objectives those agencies 
administer. The manner and extent to which the provisions of 12 
U.S.C. 5512(b)(2) apply to a rulemaking of this kind that does not 
establish standards of conduct is unclear. Nevertheless, to inform 
this rulemaking more fully, the Bureau performed the analysis and 
consultations described in those provisions of the Dodd-Frank Act.
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    The Proposed Rule would define a category of ``larger 
participant[s] of other markets for other consumer financial products 
or services'' that would be subject to the Bureau's nonbank supervision 
program pursuant to 12 U.S.C. 5514(a)(1)(B). The proposed category 
would include ``larger participants'' of a market for ``student loan 
servicing'' that the Proposed Rule would describe. Participation in 
this market would be measured on the basis of account volume. If a 
nonbank covered person's account volume (measured, per the proposed 
definition, as of December 31 in the preceding calendar year) exceeded 
one million, then it would be a larger participant. If a firm was 
deemed to be a larger participant in a given year, then it would remain 
a larger participant for at least the subsequent year as well, 
regardless of its account volume in that year.

B. Potential Benefits and Costs to Consumers and Covered Persons

    This analysis considers the benefits, costs, and impacts of the key 
provisions of the Proposed Rule against a baseline that includes the 
Bureau's existing rules defining larger participants in certain 
markets.\53\ At present, there is no Federal program for supervision of 
nonbank student loan servicers of private student loans with respect to 
Federal consumer financial law. With respect to Federal student loans, 
there is no Federal program for supervision of nonbank student loan 
servicers with respect to Federal consumer financial law, but servicing 
of Federal student loans must be conducted in accordance with the 
Department of Education's performance standards.\54\ With the Proposed 
Rule in effect, the Bureau would be able to supervise larger 
participants of the defined student loan servicing market.
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    \53\ The Bureau has discretion in any rulemaking to choose an 
appropriate scope of analysis with respect to potential benefits and 
costs and an appropriate baseline. The Bureau, as a matter of 
discretion, has chosen to describe a broader range of potential 
effects to more fully inform the rulemaking.
    \54\ Department of Education, Federal Student Aid Annual Report, 
p. 2 (2012).
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    The Bureau notes at the outset that limited data are available with 
which to quantify the potential benefits, costs, and impacts of the 
Proposed Rule. For example, although the Bureau has general 
quantitative information, as discussed above, on the number of market 
participants and their numbers of borrowers and loans and volumes of 
unpaid principal balances, the Bureau lacks detailed information about 
their rate of compliance or non-compliance with Federal consumer 
financial law and about the range of, and costs of, compliance 
mechanisms used by market participants.

[[Page 18910]]

    In light of these data limitations, this analysis generally 
provides a qualitative discussion of the benefits, costs, and impacts 
of the Proposed Rule. General economic principles, together with the 
limited data that are available, provide insight into these benefits, 
costs, and impacts. Where possible, the Bureau has made quantitative 
estimates based on these principles and data as well as on its 
experience of undertaking supervision.
    The discussion below describes three categories of potential 
benefits and costs. First, the Proposed Rule, if adopted, would 
authorize the Bureau's supervision in the student loan servicing 
market. Larger participants in the market might respond to the 
possibility of supervision by changing their systems and conduct, and 
those changes might result in costs, benefits, or other impacts. 
Second, when the Bureau undertook supervisory activity at specific 
student loan servicers, those servicers would incur costs from 
responding to supervisory activity, and the results of these individual 
supervisory activities might also produce benefits and costs.\55\ 
Third, the Bureau analyzes the costs that might be associated with 
entities' efforts to assess whether they would qualify as larger 
participants under the rule.
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    \55\ Pursuant to section 12 U.S.C. 5514(e), the Bureau also has 
supervisory authority over service providers to nonbank covered 
persons encompassed by 12 U.S.C. 5514(a)(1), which includes larger 
participants. The Bureau does not have data on the number or 
characteristics of service providers to the roughly seven larger 
participants of the student loan servicing market. The discussion 
herein of potential costs, benefits, and impacts that might result 
from the Proposed Rule generally applies to service providers to 
larger participants.
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    In considering the costs and benefits of the Proposed Rule, it is 
important to note that Federal student loans differ from private 
student loans in various ways, including repayment options, terms and 
conditions; the treatment of delinquent accounts; and servicing 
standards, which for Federal loans are imposed by the Department of 
Education. Federal student loans are also much more prevalent than 
private student loans: Of the 39 percent of undergraduates who obtained 
education loans in the 2007-2008 academic year, 90 percent obtained 
Federal loans and only 39 percent obtained private student loans.\56\
---------------------------------------------------------------------------

    \56\ National Postsecondary Student Aid Study 2008 (hereinafter 
NPSAS 2008).
---------------------------------------------------------------------------

1. Benefits and Costs of Responses to the Possibility of Supervision
    The Proposed Rule would subject larger participants of the student 
loan servicing market to the possibility of Bureau supervision. That 
the Bureau would be authorized to undertake supervisory activities with 
respect to a nonbank covered person who qualified as a larger 
participant would not necessarily mean the Bureau would in fact 
undertake such activities regarding that covered person in the near 
future. Rather, supervision of any particular larger participant as a 
result of this rulemaking would be probabilistic in nature. For 
example, the Bureau would examine certain larger participants on a 
periodic or occasional basis. The Bureau's decisions about supervision 
would be informed, as applicable, by the factors set forth in 12 U.S.C. 
5514(b)(2), relating to the size and transaction volume of individual 
participants, the risks their consumer financial products and services 
pose to consumers, the extent of State consumer protection oversight, 
and other factors the Bureau may determine are relevant. Each entity 
that believed it qualified as a larger participant would know that it 
might be supervised and might gauge, given its circumstances, the 
likelihood that the Bureau would initiate an examination or other 
supervisory activity.
    The prospect of potential supervisory activity could create an 
incentive for larger participants to increase their compliance with 
Federal consumer financial law. They might anticipate that by doing so 
(and thereby decreasing risks to consumers), they could decrease the 
likelihood of their actually being subjected to supervision as the 
Bureau evaluated the factors outlined above. In addition, an actual 
examination would likely reveal any past or present noncompliance, 
which the Bureau could seek to correct through supervisory activity or, 
in some cases, enforcement actions. Larger participants might therefore 
judge that the prospect of supervision increased the potential 
consequences of noncompliance with Federal consumer financial law, and 
they might seek to decrease that risk by curing or mitigating any 
noncompliance.
    The Bureau believes it is likely that market participants would 
increase compliance in response to the Bureau's supervisory activities 
authorized by the Proposed Rule. However, because the Proposed Rule 
itself would not require any student loan servicer to alter its 
performance of student loan servicing, any estimate of the amount of 
increased compliance would be both an estimate of current compliance 
levels and a prediction of market participants' behavior. The data the 
Bureau currently has do not support a specific quantitative estimate or 
prediction. But, to the extent that student loan servicers increased 
their compliance in response to the Proposed Rule, that response would 
result in both benefits and costs.\57\
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    \57\ Another approach to considering the benefits, costs, and 
impacts of the Proposed Rule would be to focus almost entirely on 
the supervision-related costs for larger participants and omit a 
broader consideration of the benefits and costs of increased 
compliance. As noted above, the Bureau has, as a matter of 
discretion, chosen to describe a broader range of potential effects 
to more fully inform the rulemaking.
---------------------------------------------------------------------------

    The Bureau notes that the existing levels of compliance with 
Federal consumer financial law may be different for the servicing of 
Federal and private student loans. The Department of Education's Office 
of Federal Student Aid (FSA) sets performance standards and oversees 
the operations of Federal student loan servicers.\58\ FSA standards for 
systems, controls, and legal compliance may have the collateral 
consequence that entities comply more faithfully with some aspects of 
Federal consumer financial law with respect to their servicing of 
Federal student loans. To that extent, any increase in compliance that 
resulted from the Proposed Rule might be smaller for Federal than for 
private student loan servicing. Both the benefits and the costs of 
increased compliance might thus be smaller for Federal student loan 
servicing.
---------------------------------------------------------------------------

    \58\ Department of Education, Federal Student Aid Annual Report, 
p. 2 (2012).
---------------------------------------------------------------------------

a. Benefits From Increased Compliance
    Increased compliance would be beneficial to consumers that are 
affected by student loan servicing. As discussed above, the potential 
pool of consumers who are directly affected by student loan servicing 
is broad: In the 2007-2008 academic year, 39 percent of undergraduates 
and 43 percent of graduate students obtained new student loans.\59\ 
Increasing the rate of compliance with such laws would benefit 
consumers and the consumer financial market by providing more of the 
protections mandated by those laws. The roughly seven larger 
participants of the student loan servicing market that would qualify as 
larger participants under the proposed threshold currently service the 
student loans of approximately 49 million borrowers.\60\ A number of 
Federal consumer financial

[[Page 18911]]

laws, including the Electronic Fund Transfer Act (EFTA) and its 
implementing regulation, Regulation E; the Fair Credit Reporting Act 
(FCRA) and its implementing regulation, Regulation V; the Equal Credit 
Opportunity Act (ECOA) and its implementing regulation, Regulation B; 
and Title X of the Dodd-Frank Act offer substantive protections to 
consumers regarding student loan servicing.\61\ Increasing the rate of 
compliance with such laws would benefit consumers by providing more of 
the protections mandated by those laws.\62\
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    \59\ NPSAS 2008.
    \60\ See 2012 SLSA Servicing Volume Survey, augmented by CFPB 
estimates. If a servicer were handling loans to an individual 
consumer for more than one holder the servicer might count that 
consumer as more than one borrower. Nonetheless, 49 million 
borrowers corresponds to a comparably large number of consumers with 
whom the anticipated larger participants interact.
    \61\ 15 U.S.C. 1693 et seq. (EFTA); 12 CFR part 1005 (Regulation 
E); 15 U.S.C. 1681 et seq. (FCRA); 12 CFR part 1022 (Regulation V); 
15 U.S.C. 1691 et seq. (ECOA); 12 CFR 1002 (Regulation B); 12 U.S.C. 
5301 et seq. (Dodd-Frank Act).
    \62\ Among other things, EFTA is intended to establish basic 
consumer rights with regard to the use of electronic systems to 
transfer funds. 15 U.S.C. 1693. FCRA was enacted to improve credit 
report accuracy and protect consumer privacy. See Safeco Ins. Co. of 
Am. v. Burr, 551 U.S. 47, 52 (2007) (``Congress enacted the FCRA in 
1970 to ensure fair and accurate credit reporting, promote 
efficiency in the banking system, and protect consumer privacy.''). 
ECOA makes it unlawful for creditors to discriminate against 
applicants, with respect to any aspect of a credit transaction, on 
the basis of race, color, religion, national origin, sex or marital 
status, or age (provided the applicant has the capacity to 
contract), the receipt of public assistance income, or the 
applicants' exercise of certain rights under Federal consumer 
financial protection laws. 15 U.S.C. 1691(a).
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    For instance, many student loan servicers receive loan payments 
through preauthorized electronic fund transfers. Among other things, 
EFTA establishes certain guidelines for ensuring that fund transfers 
are not sent without consumers' consent.\63\ Increased compliance with 
EFTA might include a higher degree of fidelity to EFTA's consent 
process and could thereby decrease the risk that borrowers will suffer 
unauthorized transfers of their funds. Unauthorized transfers could 
adversely affect consumers by modifying the amount and timing of 
payments. Even if the amount of payments per period is anticipated, the 
timing of payments could constrain consumers in the very short run. For 
example, a consumer might plan to make a student loan payment in one 
pay period and a car payment in the next pay period, but may have 
insufficient funds both to make payments in the same pay period and to 
meet his other financial obligations without incurring additional 
charges such as overdraft fees. Furthermore, the timing of anticipated 
payments may affect overall consumption for certain groups of 
consumers.\64\
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    \63\ 15 U.S.C. 1693e.
    \64\ Recent work by Mastrobuoni and Weinberg and by Shapiro and 
Slemrod demonstrated that the timing of payments to consumers can 
affect their consumption. Mastrobuoni, Giovanni and Weinberg, 
Matthew, 2009. ``Heterogeneity in Intra-Monthly Consumption 
Payments, Self-Control, and Savings at Retirement,'' American 
Economic Journal: Economic Policy, American Economic Association, 
vol. 1(2), pp. 163-89; Shapiro, Matthew and Slemrod, Joel, 1995. 
``Consumer Response to the Timing of Income: Evidence from a Change 
in Tax Withholding,'' American Economic Review, American Economic 
Association, vol. 85(1), pp. 274-83. Consumers can also be expected 
to adjust their consumption in response to the timing of anticipated 
account debits such as automatic-debit student loan payments.
---------------------------------------------------------------------------

    As another example, many student loan servicers furnish information 
to consumer reporting agencies about borrowers' payment histories. Such 
servicers therefore have certain obligations under FCRA and Regulation 
V. FCRA prohibits the furnishing of information to a consumer reporting 
agency that the furnisher knows or has reasonable cause to believe is 
inaccurate.\65\ A servicer that furnishes information to consumer 
reporting agencies must establish and implement reasonable written 
policies and procedures regarding the accuracy and integrity of the 
information furnished, considering applicable Federal guidelines, and 
must periodically review the policies and procedures and update them as 
necessary to ensure their continued effectiveness.\66\ FCRA also gives 
consumers the ability to dispute information furnished to consumer 
reporting agencies by submitting disputes to the consumer reporting 
agencies or directly to furnishers.\67\ A student loan servicer 
receiving a dispute must conduct a reasonable investigation.\68\ 
Increased compliance with these FCRA requirements would increase the 
accuracy of information that is furnished to consumer reporting 
agencies and thus of the information that is included in consumer 
reports. Given that student debt is a substantial proportion of total 
consumer debt in the United States, increasing the accuracy of 
reporting in this segment of the debt market could have a substantial 
positive effect on consumer report accuracy.\69\ Because consumer 
reports are often critical in decisions regarding consumer financial 
products and services, more accurate information could lead to better 
economic decisions that would benefit both markets and consumers.\70\
---------------------------------------------------------------------------

    \65\ 15 U.S.C. 1681s-2(a)(1)(A).
    \66\ 12 CFR 1022.42.
    \67\ 15 U.S.C. 1681i(a)(1), 1681s-2(a)(8); 12 CFR 1022.43.
    \68\ 15 U.S.C. 1681i (indirect); 12 CFR 1022.43 (direct). In 
2011 approximately eight million consumer contacts with the three 
largest consumer reporting agencies resulted in approximately 32 to 
38 million disputed items on consumers' credit files. CFPB, Key 
Dimensions and Processes in the U.S. Credit Reporting System, p. 4 
(2012).
    \69\ As discussed above, the Bureau estimates that outstanding 
student loan debt was approximately $1.1 trillion at the end of 
2012. This figure represents ten percent of total U.S. consumer debt 
at the end of the fourth quarter of 2012. See Federal Reserve Bank 
of New York, Quarterly Report on Household Debt and Credit, p. 3 
(Feb. 2013), available at http://www.newyorkfed.org/research/national_economy/householdcredit/DistrictReport_Q42012.pdf 
(finding that total U.S. consumer debt was $11.31 trillion at the 
end of the fourth quarter of 2012).
    \70\ Inaccurate information, for example, could lead to a 
consumer's being denied a loan that the consumer could afford to and 
would be likely to repay. Several studies have identified the 
problems that inaccurate consumer reporting creates in credit 
markets. See e.g., Avery, Robert B., et al., Credit Report Accuracy 
and Access to Credit, 2004 Federal Reserve Bulletin 297, pp. 314-15 
(estimating fraction of individuals for whom inaccuracies in credit 
reports might affect credit terms); see also id. 301-02 (citing 
prior research). Inaccurate information could also lead to a 
consumer's being offered credit at an interest rate higher than 
would be available if the creditor knew the consumer's true credit 
history. Conversely, some inaccuracies, by exaggerating some 
consumers' credit worthiness, may enable such consumers to receive 
lower interest rates than they otherwise would but understate their 
risk of default. In all these cases, increasing the accuracy of 
consumer report information should improve the pricing and 
allocation of credit.
---------------------------------------------------------------------------

    More broadly, the Bureau will be examining whether larger 
participants of the student loan servicing market engage in unfair, 
deceptive, or abusive acts or practices (UDAAPs).\71\ Conduct that does 
not violate an express prohibition of another Federal consumer 
financial law may nonetheless constitute a UDAAP.\72\ Among the areas 
that the Bureau would examine with, in part, a view to preventing 
UDAAPs are repayment status processing, loan servicing transfers, 
general payment processing, application of prepayments and partial 
payments, and default prevention and avoidance. To the degree that any 
servicer is currently engaged in any UDAAP in these areas, the 
cessation of the unlawful act or practice would benefit consumers.\73\ 
All of the previously listed areas could be reviewed during an 
examination and, therefore, student loan servicers might improve 
policies and procedures relating to these areas in order to avoid 
engaging in UDAAPs.
---------------------------------------------------------------------------

    \71\ 12 U.S.C. 5531.
    \72\ The CFPB Supervision and Examination Manual provides 
further guidance on how the UDAAP prohibition applies to supervised 
entities. That examination manual is available at http://www.consumerfinance.gov/guidance/supervision/manual.
    \73\ See CFPB Supervision and Examination Manual (October 1, 
2012), available at http://www.consumerfinance.gov/guidance/supervision/manual/ for a more extensive discussion on the areas in 
which the Bureau intends to examine. Examiners will be reviewing 
these business lines for UDAAPs and for any other noncompliance with 
Federal consumer financial law.

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[[Page 18912]]

b. Costs of Increased Compliance
    On the other hand, increasing compliance involves costs. In the 
first instance, those costs would be paid by the market participants 
that choose to increase compliance. Student loan servicers might need 
to hire or train additional personnel to effectuate any changes in 
their practices that would be necessary to produce the increased 
compliance. They might need to invest in systems changes to carry out 
their revised procedures. In addition, student loan servicers might 
need to develop or enhance compliance management systems, to ensure 
that they are aware of any gaps in their compliance. Such changes would 
also require investment and might entail increased operating costs.
    An entity that incurred costs in support of increasing compliance 
might try to recoup those costs by attempting to increase servicing 
revenues.\74\ Whether and to what extent such an increase occurred 
would depend on competitive conditions in the student loan servicing 
market. For example, larger participants in the student loan servicing 
market may be in competition with depository institutions or credit 
unions (or affiliates thereof) that are already subject to Federal 
supervision with respect to Federal consumer financial law. Assuming as 
a baseline Bureau supervision of depository institutions and credit 
unions with over $10 billion in assets (and their affiliates) and 
prudential regulator supervision with respect to these areas of other 
depository institutions and credit unions,\75\ to the extent the 
Proposed Rule resulted in an increase in the costs faced by the roughly 
seven larger participants, that increase would be a competitive benefit 
to those other covered persons. And competition from those other 
covered persons might reduce the ability of the roughly seven larger 
participants to pass an increase in their costs through as an increase 
in the price of servicing.
---------------------------------------------------------------------------

    \74\ The Bureau uses the terms ``revenues'' and ``receipts'' 
interchangeably in the discussion that follows. The term ``annual 
receipts,'' however, is used with specific meaning in the context of 
the Small Business Administration's size standards. How a 
participant receives its revenue depends on the participant's 
business model. Compensation for servicing Federal student loans is 
based on contracts with the Department of Education and assignments 
are dependent on a Department of Education Performance Score Card. 
See Title IV Redacted Contract Awards, available at https://www.fbo.gov/spg/ED/FSA/CA/FSA-TitleIV-09/listing.html. See also 2012 
FSA Conference Session 14, Federal Loan Servicer Panel Discussion, 
p. 11. For private student loans, servicing contracts are negotiated 
between loan holders or guarantors and master servicers, and between 
master servicers and subservicers.
    \75\ See 12 U.S.C. 5515; 12 U.S.C. 5516.
---------------------------------------------------------------------------

    Any increase that did occur could constitute a cost of the rule 
borne in part by originators and holders of student loans. Originators 
or holders might respond to such a cost by choosing to bear the higher 
servicing costs, by exiting the student loan market, or by servicing 
their portfolios of student loans in-house.
    Whether and to what extent such an increase might occur would 
depend on market conditions. With respect to private student loans, 
origination and servicing are subject to the negotiation of terms, 
conditions, and prices; the Bureau lacks detailed information with 
which to predict what portion of any cost of increased compliance would 
be borne by loan originators or holders, and what portion would be 
borne by consumers. For Federally-owned loans, the price of servicing 
is determined by contracts between servicers and the FSA.\76\ Because 
the FSA, as a dominant purchaser of servicing, has great control over 
pricing, the Bureau expects that relatively little if any increase in 
the cost of servicing Federal student loans would be passed through as 
an increase in the price of servicing. With respect to consumers, 
Federal student loans ``were authorized as entitlement programs in 
order to meet student loan demand.'' \77\ Eligibility criteria, 
interest rates, and loan limits for Federal student loans are 
determined by Federal law, including the periodic reauthorization of 
the Higher Education Act of 1965.\78\ Therefore, while the price of 
servicing Federal student loans might change, depending on market 
conditions, the pricing for and access to Federal student loans would 
likely not change substantially as a consequence of increases in 
servicers' compliance with Federal consumer financial law.
---------------------------------------------------------------------------

    \76\ See Title IV Redacted Contract Awards, available at https://www.fbo.gov/spg/ED/FSA/CA/FSA-TitleIV-09/listing.html.
    \77\ Department of Education Student Loans Overview: Fiscal Year 
2013 Budget Request at p. R-28, available at http://www2.ed.gov/about/overview/budget/budget13/justifications/r-loansoverview.pdf.
    \78\ 20 U.S.C. 1070 et seq.
---------------------------------------------------------------------------

2. Benefits and Costs of Individual Supervisory Activities
    In addition to the responses of market participants anticipating 
supervision, the possible consequences of the Proposed Rule would 
include the responses to and effects of individual examinations or 
other supervisory activity that the Bureau might conduct in the student 
loan servicing market.
a. Benefits of Supervisory Activities
    Supervisory activity could provide several types of benefits. For 
example, as a result of supervisory activity, the Bureau and the entity 
might uncover deficiencies in an entity's policies and procedures. The 
Bureau's examination manual calls for the Bureau generally to prepare a 
report of each examination, to assess the strength of the entity's 
compliance mechanisms, and to assess the risks the entity poses to 
consumers, among other topics. The Bureau would share examination 
findings with the entity, because one purpose of supervision is to 
inform the entity of problems detected by examiners. Thus, for example, 
an examination might find evidence of widespread noncompliance with 
Federal consumer financial law, or it might identify specific areas 
where an entity has inadvertently failed to comply. These examples are 
only illustrative of what kinds of information an examination might 
uncover.
    Detecting and informing entities about such problems should be 
beneficial to consumers. When the Bureau notifies an entity about risks 
associated with an aspect of its activities, the entity is expected to 
adjust its practices to reduce those risks. That response may result in 
increased compliance with Federal consumer financial law, with benefits 
like those described above. Or it may avert a violation that would have 
occurred had Bureau supervision not detected the risk promptly. The 
Bureau may also inform entities about risks posed to consumers that 
fall short of violating the law. Action to reduce those risks would 
also be a benefit to consumers.
    Given the obligations student loan servicers have under Federal 
consumer financial law and the existence of efforts to enforce such 
law, the results of supervision may also benefit student loan servicers 
under supervision by detecting compliance problems early. When an 
entity's level of noncompliance has resulted in litigation or an 
enforcement action, the entity must face both the costs of defending 
its actions and the penalties for noncompliance, including potential 
liability for statutory damages to private plaintiffs. The entity must 
also adjust its systems to ensure future compliance. Changing practices 
at this point can be expected to be relatively difficult, because a 
level of noncompliance that has attracted the attention of enforcement 
authorities or private plaintiffs is sometimes severe enough to 
represent a serious failing of an entity's systems. Supervision may 
detect flaws at a point when correcting them would

[[Page 18913]]

be relatively inexpensive. And catching problems before they involve an 
entity in costly private litigation or administrative enforcement, and 
potentially the payment of legal penalties or other forms of relief, 
could save the entity substantial time and money. In short, supervision 
might benefit student loan servicers under supervision by reducing the 
need for other more expensive activities, like enforcement and private 
litigation, to achieve a given compliance rate. Accordingly, a shift of 
some amount of regulatory oversight from enforcement to supervision 
would be beneficial to market participants.\79\
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    \79\ Further potential benefits to consumers, covered persons, 
or both might arise from the Bureau's gathering of information 
during supervisory activities. The goals of supervision include 
informing the Bureau about activities of market participants and 
assessing risks to consumers and to markets for consumer financial 
products and services. The Bureau may use this information to 
improve regulation of consumer financial products and services and 
to improve enforcement of Federal consumer financial law, in order 
to better serve its mission of ensuring consumers' access to fair, 
transparent, and competitive markets for such products and services. 
Benefits of this type would depend on what the Bureau learns during 
supervision and how it uses that knowledge. For example, because the 
Bureau would examine multiple covered persons in the student loan 
servicing market, the Bureau would build an understanding of how 
effective compliance systems and processes function.
---------------------------------------------------------------------------

b. Costs of Supervisory Activities
    The potential costs of actual supervisory activities would arise in 
two categories. The first would involve the costs to individual student 
loan servicers of increasing compliance in response to the Bureau's 
findings during supervisory activity and to supervisory actions. These 
costs would be similar in nature to the possible compliance costs, 
described above, that larger participants in general might incur in 
anticipation of possible supervisory activity. This analysis will not 
repeat that discussion. The second category would be the cost of 
supporting supervisory activity.
    Supervisory activity may involve requests for information or 
records, on-site or off-site examinations, or some combination of these 
activities. For example, in an on-site examination, generally, Bureau 
examiners would begin by contacting an entity for an initial conference 
with management. That initial contact is often accompanied by a request 
for information or records. Based on the discussion with management and 
an initial review of the information received, examiners would 
determine the scope of the on-site exam. While on-site, examiners would 
spend some time in further conversation with management about the 
entity's policies, processes, and procedures. The examiners would also 
review documents, records, and accounts to assess the entity's 
compliance and evaluate the entity's compliance management systems. As 
with the Bureau's other examinations, examinations of nonbank 
participants in the student loan servicing market might involve issuing 
confidential examination reports and compliance ratings. The Bureau's 
examination manual describes the supervision process and indicates what 
materials and information an entity can expect examiners to request and 
review, both before they arrive and during their time on-site.
    The primary cost an entity would face in connection with an 
examination would be the cost of employees' time to collect and provide 
the necessary information. At this stage in its nonbank supervision 
program, the Bureau does not have precise estimates of the expected 
duration and frequency of its examinations and the resources that 
entities may expend to cooperate with such examinations. The frequency 
and duration of examinations of any particular entity would depend on a 
number of factors, including the size of the entity, the compliance or 
other risks identified, whether the entity has been examined 
previously, and the demands on the Bureau's supervisory resources 
imposed by other entities and markets. Nevertheless, some rough 
estimates may be useful to provide a sense of the magnitude of 
potential staff costs that entities might incur.
    The Bureau has engaged in multiple mortgage servicing exams. 
Because both mortgage servicing and student loan servicing involve 
collecting and remitting payments on long-term loans, examinations of 
mortgage servicers should be a reasonable analogue for the examinations 
the Bureau would conduct under the Proposed Rule.\80\ Therefore, the 
Bureau intends to estimate duration and labor intensity of examinations 
using information from mortgage servicing examinations that have 
already been completed. The average duration of the on-site portion of 
a Bureau examination of a mortgage servicer is ten weeks.\81\ The 
Bureau estimates the cost of an examination to a student loan servicer 
by assuming that, similarly, Bureau examiners might review materials 
and interview employees for ten weeks. An entity might devote the 
equivalent of one full-time employee during that time and for two weeks 
beforehand to prepare materials for the examination. The typical cost 
of an employee involved in responding to supervision can be expected to 
be roughly $49 per hour.\82\ Twelve weeks of such an employee's time 
would cost approximately $24,000.\83\
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    \80\ Mortgage servicing examinations likely differ in detail 
from the supervisory activity the Bureau would undertake for student 
loan servicers. For example, mortgage servicers have certain 
obligations under the Real Estate Settlement Procedures Act, 12 
U.S.C. 2601 et seq., which does not apply to student loan servicing. 
As another example, mortgages are secured by real estate, and 
servicing activities may sometimes involve that security interest. 
The Bureau's examination manuals that relate to mortgage servicing 
and education lending reflect the differences between these two 
markets. Nonetheless, for the majority of borrowers, the core 
activities of the two types of servicers are comparable. The Bureau 
therefore expects that its experience supervising mortgage servicers 
can provide a useful guide for estimating the costs of examinations 
of student loan servicers.
    \81\ This estimate is based on confidential supervisory Bureau 
data on the duration of on-site mortgage servicing examinations at 
both depository institutions and nonbanks. For purposes of this 
calculation, the Bureau counts its mortgage servicing examinations 
for which the on-site portion has been completed. Additionally, the 
Bureau counts only the on-site portion of an examination, which 
includes time during the on-site period of the examination that 
examiners spent examining the entity while off-site for holiday or 
other travel considerations. However, the Bureau does not count time 
spent scoping an examination before the on-site portion of the 
examination or summarizing findings or preparing reports of 
examination afterwards.
    \82\ Bureau of Labor Statistics, (BLS), Occupational Employment 
Statistics, available at ftp://ftp.bls.gov/pub/special.requests/oes/oesm11all.zip. BLS data for ``activities related to credit 
information'' (NAICS code 522300) indicate that the mean hourly wage 
of a compliance officer in that sector is $33.13. BLS data also 
indicate that salary and wages constitute 67.5 percent of the total 
cost of compensation. Dividing the hourly wage by 67.5 percent 
yields a wage (including total costs, such as salary, benefits, and 
taxes) rounded to the nearest dollar of $49 per hour.
    \83\ All figures assume 40 hours of work per week.
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    By comparison, the Bureau estimates that a student loan servicer 
with responsibility for one million accounts would receive at least 
$20.2 million per year in revenue from that activity.\84\ Thus, the 
labor costs associated with an examination, as estimated above, would 
be no greater than 0.12 percent of the

[[Page 18914]]

annual receipts of such a firm.\85\ Note that $20.2 million is an 
estimated lower bound on the annual receipts of a larger participant as 
defined by the Proposed Rule, and the Bureau anticipates examining most 
larger participants in the student loan servicing market no more than 
approximately once every two years. For all these reasons, the costs 
associated with supervision are therefore likely to be a much smaller 
percentage of annual receipts for a given larger participant.\86\
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    \84\ The Bureau estimates this figure based on the 2013 average 
unit cost for loan servicing on Federal loans of $1.68 per month per 
borrower for for-profit servicers of Federal loans, as reported by 
the Department of Education. See Student Aid Administration Fiscal 
Year 2013 Request at p. AA-15, available at http://www2.ed.gov/about/overview/budget/budget13/justifications/aa-saadmin.pdf. The 
same source reports that not-for-profit servicers' average unit cost 
is $1.76 per month per borrower. The Bureau assumes, for the 
estimate, that servicing private student loans generates at least as 
much revenue per month per borrower as servicing Federal loans, and 
that a loan is serviced for 12 months per year. Note that since the 
number of accounts is no less than the number of borrowers, this 
approach may underestimate revenues.
    \85\ An entity may receive revenue from other sources.
    \86\ Assuming the Bureau examines each of the seven larger 
participants of the student loan servicing market once every two 
years, the expected annual labor cost of supervision per larger 
participant would be approximately $12,000. This would account for 
at most 0.06 percent of the annual receipts of an entity responsible 
for one million accounts. To put this in perspective, the Bureau 
estimates that the seven larger participants handle at least 49 
million accounts, resulting in at least $984 million in annual 
receipts. The expected annual labor cost of supervision, 
collectively, at these seven larger participants is estimated to be 
$82,000, which is 0.01 percent of their estimated total annual 
receipts.
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    However, the Bureau declines to predict, at this point, precisely 
how many examinations in the student loan servicing market it would 
undertake in a given year. If the Proposed Rule is adopted, the Bureau 
will be able to undertake supervisory activity in the identified 
market; neither the Dodd-Frank Act nor the Proposed Rule specifies a 
particular level or frequency of examinations. The frequency of 
examinations would depend on a number of factors, including the 
Bureau's understanding of the conduct of market participants and the 
specific risks they pose to consumers; the responses of larger 
participants to prior examinations; and the demands that other markets 
make on the Bureau's supervisory resources. These factors can be 
expected to change over time, and the Bureau's understanding of these 
factors may change as it gathers more information about the market 
through its supervision and by other means.
3. Costs of Assessing Larger-Participant Status
    Finally, the Bureau acknowledges that in some cases student loan 
servicers may incur costs in assessing whether they qualify as larger 
participants and potentially disputing their status. The rule is 
designed to minimize those costs.
    Larger-participant status depends on the number of accounts for 
which a student loan servicer is performing servicing as of December 31 
of the prior calendar year. This number should be readily extractible 
from administrative records, because account volume is, in general, 
derived from the compensation a servicer receives. In addition, all but 
one large nonbank student loan servicer reported to SLSA their number 
of borrowers and number of loans as of December 31, 2011.\87\ These two 
figures should be lower and upper bounds for a servicer's number of 
accounts. Student loan servicers that service Federal loans should at a 
minimum know their Federal loan volumes as of December 31 because the 
Department of Education keeps up-to-date records of Federal student 
loan servicers in the National Student Loan Data System (NSLDS).\88\
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    \87\ 2012 SLSA Servicing Volume Survey.
    \88\ Department of Education. 2013, National Student Loan Data 
System (NSLDS) for Students, available at https://www.nslds.ed.gov.
---------------------------------------------------------------------------

    To the extent that some student loan servicers do not already know 
their account volumes, such servicers might, in response to the 
Proposed Rule, develop new systems to count their accounts in 
accordance with the proposed definition of ``account volume.'' The data 
the Bureau currently has do not support a detailed estimate of how many 
student loan servicers would engage in such development or how much 
they might spend. Regardless, student loan servicers would be unlikely 
to spend significantly more on specialized systems to count accounts 
than it would cost them to be supervised by the Bureau as larger 
participants. It bears emphasizing that even if expenditures on an 
accounting system successfully proved that a student loan servicer was 
not a larger participant, it would not necessarily follow that the 
student loan servicer could not be supervised. The Bureau can supervise 
a student loan servicer whose conduct the Bureau determines, pursuant 
to 12 U.S.C. 5514(a)(1)(C), poses risks to consumers. Thus, a student 
loan servicer choosing to spend significant amounts on an accounting 
system directed toward the larger-participant test could not be sure it 
would not be subject to Bureau supervision notwithstanding those 
expenses. The Bureau therefore believes it is unlikely that any but a 
very few student loan servicers would undertake such expenditures.
4. Consideration of Alternatives
    The Bureau is considering different thresholds for larger-
participant status in the student loan servicing market. Figure 1 
presents projections of the number of borrowers with loans being 
serviced by each servicer as of December 31, 2012.\89\ Since the Bureau 
does not have specific data about the number of accounts, as defined in 
the Proposed Rule, in the discussion that follows the number of 
borrowers, as reported to SLSA, is treated as a proxy for the number of 
accounts at a given servicer.\90\ These projections may underestimate 
the actual number of accounts for loans being serviced, because they do 
not account for the possibility of growth in the servicing of private 
student loans or the possibility of multiple accounts for a given 
borrower at a servicer. Note that there is a relatively large decline 
in number of borrowers between the seventh largest servicer, which 
services the loans of approximately 1.5 million borrowers, and the next 
largest servicers, each of which services the loans of approximately 
300,000 borrowers. This drop is attributable in part to FSA's mechanism 
for allocating servicing contracts to the TIVAS and to the not-for-
profit servicers (NFPs): Each NFP is limited to servicing at most 
100,000 Federal accounts at a time.\91\
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    \89\ See 2012 SLSA Servicing Volume Survey, augmented by CFPB 
estimates.
    \90\ For Federal Direct and Federally-owned FFELP loans, the 
concept of borrower and account are identical.
    \91\ SAFRA--Not-For-Profit (NFP) Servicer Program documentation, 
as of Dec. 6, 2012, available at https://www.fbo.gov/spg/ED/FSA/CA/NFP-RFP-2010/listing.html.
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    One possible alternative the Bureau is considering is a larger 
threshold, of, for example, three million in account volume. Under such 
an alternative, the benefits of supervision to both consumers and 
covered persons would likely be substantially reduced because firms 
impacting a large number of consumers and/or consumers in important 
market segments would be omitted. On the other hand, the potential 
costs to covered persons would of course be reduced if fewer firms were 
defined as larger participants and thus fewer were subject to the 
Bureau's supervision authority on that basis.
    Figure 1: Estimated Number of Borrowers Serviced by Servicers and 
Affiliates \92\
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    \92\ 2012 SLSA Servicing Volume Survey, augmented by CFPB 
estimates.

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[[Page 18915]]

[GRAPHIC] [TIFF OMITTED] TP28MR13.000

    The Bureau is also considering various other criteria for 
determining larger-participant status, including number of loans and 
total unpaid principal balances. Calculating either of these metrics 
might be more involved than calculating total account volume for a 
given servicer. If so, then a given entity might face greater costs for 
evaluating or disputing whether it qualified as a larger participant. 
However, among the participants in the student loan servicing market 
these metrics correlate strongly with account volume. For each 
criterion, the Bureau expects that it could choose a suitable threshold 
for which the set of larger participants, among those entities 
participating in the market today, would be the same as the seven 
entities expected to qualify under the Proposed Rule. Consequently, the 
costs, benefits, and impacts of supervisory activities should not 
depend on which criterion the Bureau uses.

C. Potential Specific Impacts of the Proposed Rule

1. Depository Institutions and Credit Unions With $10 Billion or Less 
in Total Assets, As Described in Dodd-Frank Act Section 1026
    The Proposed Rule would not apply to depository institutions or 
credit unions of any size. However, it might, as discussed above, have 
some impact on depository institutions that hold private student loans 
or that service private student loans or FFELP loans. The Proposed Rule 
might therefore alter market dynamics in a market in which some 
depository institutions and credit unions with less than $10 billion in 
assets may be active. To the extent such institutions may have less 
market power than larger institutions, the change in market dynamics 
could affect them differently. Although this affects all student loan 
holders that contract for servicing, loan holders that are depository 
institutions or credit unions with less than $10 billion in assets may 
have less negotiating power with respect to the price of servicing than 
larger institutions, so they may face larger price increases. However, 
the Bureau notes that asset size alone is not necessarily a good 
predictor of each institution's susceptibility to any changes in the 
student loan servicing market that might result from the Proposed Rule. 
An individual institution that focused on educational lending might, on 
its own or together with its affiliates, play a role in the market for 
originating student loans or for contracting for servicing that was 
disproportionate to its assets as a share of the overall banking 
market. And an individual institution might have contractual or other 
relationships with particular servicers that could insulate it from 
some of the potential impacts of the Proposed Rule or could make it 
especially vulnerable to those impacts.
2. Impact of the Provisions on Consumer Access to Credit and on 
Consumers in Rural Areas
    If the costs of increased compliance increased the price of 
servicing, creditors might consider that increase in the underwriting 
and loan pricing process. Private student loan creditors might consider 
adjusting the terms and conditions of loans to pass some or all of the 
price increase through to consumers. In addition, creditors might be 
less willing to extend credit to marginal borrowers. Thus, it is 
possible that consumers' access to credit might decrease as a result of 
the Proposed Rule. As noted above, qualifying students are entitled to 
Federal Direct loans in amounts and on terms specified by statute.\93\ 
An increase in the price of servicing Federal loans is therefore 
unlikely to reduce consumers' access to such loans.
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    \93\ See 20 U.S.C. 1087e.
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    Since the rule applies uniformly to the loans of a particular type 
of both rural and non-rural consumers, the rule should not have a 
unique impact on rural consumers. The Bureau is not aware of any 
evidence suggesting that rural consumers have been

[[Page 18916]]

disproportionately harmed by student loan servicers' failure to comply 
with Federal consumer financial law. The Bureau would welcome any 
comments that may provide information related to how student loan 
servicing affects rural consumers.

VII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996, requires each 
agency to consider the potential impact of its regulations on small 
entities, including small businesses, small governmental units, and 
small not-for-profit organizations.\94\ The RFA defines a ``small 
business'' as a business that meets the size standard developed by the 
Small Business Administration pursuant to the Small Business Act.\95\
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    \94\ 5 U.S.C. 601 et seq. The term ```small organization' means 
any not-for-profit enterprise which is independently owned and 
operated and is not dominant in its field, unless an agency 
establishes [an alternative definition after notice and comment].'' 
Id. at 601(4). The term ```small governmental jurisdiction' means 
governments of cities, counties, towns, townships, villages, school 
districts, or special districts, with a population of less than 
fifty thousand, unless an agency establishes [an alternative 
definition after notice and comment].'' Id. at 601(5). The Bureau is 
not aware of any small governmental units or small not-for-profit 
organizations to which the Proposed Rule would apply.
    \95\ 5 U.S.C. 601(3). The Bureau may establish an alternative 
definition after consultation with the Small Business Administration 
and an opportunity for public comment.
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    The RFA generally requires an agency to conduct an initial 
regulatory flexibility analysis (IRFA) of any proposed rule subject to 
notice-and-comment rulemaking requirements, unless the agency certifies 
that the proposed rule would not have a significant economic impact on 
a substantial number of small entities. The Bureau also is subject to 
certain additional procedures under the RFA involving the convening of 
a panel to consult with small entity representatives prior to proposing 
a rule for which an IRFA is required.\96\
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    \96\ 5 U.S.C. 609.
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    The undersigned certifies that the Proposed Rule, if adopted, would 
not have a significant economic impact on a substantial number of small 
entities and that an initial regulatory flexibility analysis is 
therefore not required.
    The Proposed Rule would define a class of student loan servicers as 
larger participants of the student loan servicing market and thereby 
authorize the Bureau to undertake supervisory activities with respect 
to those servicers. The rule adopts a threshold for larger-participant 
status of one million in account volume. As estimated above, a student 
loan servicer with one million accounts receives about $20.2 million in 
servicing revenue per year. By contrast, under the Small Business 
Administration's existing criterion, a servicer is a small business 
only if its annual receipts are below $7 million.\97\ Thus, larger 
participants in the student loan servicing market would generally not 
be small businesses for purposes of this analysis. Indeed, using the 
estimate above that a servicer earns $1.68 per month per account, the 
Bureau believes that none of the larger participants under the Proposed 
Rule would have annual receipts below $30 million.\98\ Moreover, the 
rule does not itself impose any obligations or standards of conduct on 
businesses outside the category of larger participants.
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    \97\ 13 CFR 121.201 (NAICS code 522390). For the purposes of 
this analysis, the Bureau assumes that participants in the student 
loan servicing market will be classified in NAICS code 522390, 
``other activities related to credit intermediation.'' NAICS lists 
``loan servicing'' as an index entry corresponding to this code. See 
http://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=522390&search=2012 NAICS Search. The Bureau welcomes 
comment on whether this or any other NAICS code is most appropriate 
for this market. The Bureau is aware that a nonbank larger 
participant of the student loan servicing market could be classified 
in a NAICS code other than the one that includes loan servicing. For 
example, some entities may be in NAICS code 522291 for consumer 
lending, which is the index entry corresponding to student lending. 
The Small Business Administration's size standard for consumer 
lending is also $7 million in annual receipts. See 13 CFR 121.201 
(NAICS code 522291).
    \98\ If one or more larger participants services loans it holds, 
such a firm might not receive monthly servicing compensation for 
such accounts. However, the Bureau is not currently aware of any 
small businesses that service student loans they originate or hold 
and that would meet the larger-participant threshold.
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    For these reasons, the Proposed Rule would not have a significant 
impact on a substantial number of small entities.\99\
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    \99\ A business might, hypothetically, be a larger participant 
of the student loan servicing market yet be a small business for RFA 
purposes, if the business lost a significant amount of account 
volume during the second year after qualifying as a larger 
participant. The Bureau expects such situations, if any, to be quite 
rare. In addition, if the Bureau aggregates the activities of 
affiliated companies in part by adding together numbers of accounts, 
two companies that are small businesses might, together, have an 
account volume over one million. The Bureau anticipates no more than 
a very few such cases, if any, in the student loan servicing market.
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    Additionally, and in any event, the Bureau believes that the 
Proposed Rule would not result in a ``significant impact'' on any small 
entities that could be affected. As previously noted, when and how 
often the Bureau would in fact engage in supervisory activity, such as 
an examination, with respect to a larger participant (and, if so, the 
frequency and extent of such activity) would depend on a number of 
considerations, including the Bureau's allocation of resources and the 
application of the statutory factors set forth in 12 U.S.C. 5514(b)(2). 
Given the Bureau's finite supervisory resources, and the range of 
industries over which it has supervisory responsibility for consumer 
financial protection, when and how often a given student loan servicer 
would be supervised is uncertain. Moreover, when supervisory activity 
occurred, the costs that would result from such activity are expected 
to be minimal in relation to the overall activities of a student loan 
servicer.\100\
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    \100\ As discussed above, the cost of participating in an 
examination might be roughly 0.12 percent of annual receipts for a 
firm near the threshold of one million in account volume. The 
proportion would be larger for a smaller firm, but the impact would 
still not be substantial.
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    Finally, 12 U.S.C. 5514(e) authorizes the Bureau to supervise 
service providers to nonbank covered persons encompassed by 12 U.S.C. 
5514(a)(1), which includes larger participants. Because the Proposed 
Rule would not address service providers, effects on service providers 
need not be discussed for purposes of this RFA analysis. Even were such 
effects relevant, the Bureau believes that it would be very unlikely 
that any supervisory activities with respect to the service providers 
to the approximately seven larger participants in the proposed student 
loan servicing market would result in a significant economic impact on 
a substantial number of small entities.\101\
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    \101\ The Bureau reaches this judgment in light of the number of 
relevant small firms in the relevant NAICS codes. For example, many 
of these service providers would be considered to be in the 
industries with NAICS code 522390, ``Other activities related to 
credit intermediation.'' According to the 2007 Economics Census, 
there are more than 5,000 small firms in the industry. The number of 
firms connected to the roughly seven larger participants of the 
proposed student loan servicing market is likely to be a fraction of 
this figure. Moreover, the impact of supervisory activities at such 
service providers would likely be no more intensive--and probably 
much less, given the Bureau's exercise of its discretion in 
supervision--than at the larger participants themselves. As 
discussed above, supervisory activities at larger participants would 
not be expected to give rise to a significant economic impact. 
Finally, because it is very unlikely that the Bureau would supervise 
many of such entities, a substantial number of entities would not 
likely be affected.
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    Accordingly, the undersigned certifies that the Proposed Rule would 
not have a significant economic impact on a substantial number of small 
entities.

VIII. Paperwork Reduction Act

    The Bureau has determined that this Proposed Rule would not impose 
any new recordkeeping, reporting, or disclosure requirements on covered

[[Page 18917]]

entities or members of the public that would constitute collections of 
information requiring approval under the Paperwork Reduction Act, 44 
U.S.C. 3501 et seq.

List of Subjects in 12 CFR Part 1090

    Consumer protection, Credit.

Authority and Issuance

    For the reasons set forth in the preamble, the Bureau proposes to 
amend 12 CFR Part 1090, Subpart B, to read as follows:

PART 1090--DEFINING LARGER PARTICIPANTS OF CERTAIN CONSUMER 
FINANCIAL PRODUCT AND SERVICE MARKETS

0
1. The authority citation for part 1090 continues to read as follows:

    Authority: 12 U.S.C. 5514(a)(1)(B); 12 U.S.C. 5514(a)(2); 12 
U.S.C. 5514(b)(7)(A); and 12 U.S.C. 5512(b)(1).
0
2. Add a new Sec.  1090.106 to subpart B to read as follows:


Sec.  1090.106  Student loan servicing market.

    (a) Market-Related definitions. As used in this subpart:
    Account volume means the number of accounts with respect to which a 
nonbank covered person is considered to perform student loan servicing, 
calculated as follows:
    (i) Number of accounts. A nonbank covered person has at least one 
account for each student or prior student with respect to whom the 
nonbank covered person performs student loan servicing. If a nonbank 
covered person is receiving separate fees for performing student loan 
servicing with respect to a given student or prior student, the nonbank 
covered person has one account for each stream of fees to which the 
person is entitled.
    (ii) Time of measurement. The number of accounts is counted as of 
December 31 of the prior calendar year.
    (iii) Affiliated companies.
    (A) The account volume of a nonbank covered person is the sum of 
the number of accounts of that nonbank covered person and of any 
affiliated companies of that person.
    (B) If two persons become affiliated companies, each person's 
number of accounts as of the prior calendar year's December 31 is 
included in the total account volume.
    (C) If two affiliated companies cease to be affiliated companies, 
the number of accounts of each continues to be included in the other's 
account volume until the succeeding December 31.
    Post-secondary education expenses means any of the expenses that 
are included as part of the cost of attendance of a student as defined 
in 20 U.S.C. 1087ll.
    Post-secondary education loan means an extension of credit that is 
made, insured or guaranteed under Title IV of the Higher Education Act 
of 1965 (20 U.S.C. 1070 et seq.) or that is extended to a consumer with 
the expectation that the funds extended will be used in whole or in 
part to pay post-secondary education expenses. A loan that is extended 
in order to refinance or consolidate a consumer's existing post-
secondary education loans is also a post-secondary education loan. 
However, no extension of credit under an open-end credit plan (as 
defined in Regulation Z, 12 CFR 1026.2(a)(20)) or loan that is secured 
by real property is a post-secondary education loan, regardless of the 
purpose for the extension of credit.
    Student loan servicing means receiving any scheduled periodic 
payments from a borrower pursuant to the terms of any post-secondary 
education loan, and making the payments of principal and interest and 
other amounts with respect to the amounts received from the borrower as 
may be required pursuant to the terms of the post-secondary education 
loan or of the contract governing the servicing; or, during a period 
when payment on a post-secondary education loan is deferred, 
maintaining account records for the loan and communicating with the 
borrower regarding the loan, on behalf of the loan's holder. Student 
loan servicing also includes interactions with a borrower to facilitate 
such receiving or making of payments or maintaining of account records 
and communicating with borrowers. Among the interactions that 
constitute student loan servicing are activities to help delinquent 
borrowers avoid or prevent default on obligations arising from post-
secondary education loans.
    (b) Test to define larger participants. A nonbank covered person 
that offers or provides student loan servicing is a larger participant 
of the student loan servicing market if the nonbank covered person's 
account volume exceeds one million.

    Dated: March 13, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2013-06291 Filed 3-27-13; 8:45 am]
BILLING CODE 4810-AM-P