Is the CFPB Committing Regulatory Overreach?

The Consumer Financial Protection Bureau (CFPB) is touted as one of the crowning achievements of the Dodd-Frank Act. But a new CFPB report on student loans is highly flawed, raising doubts about its regulatory reach over the private student-loan market.

The CFPB was created to bring all consumer financial products under one regulatory umbrella. It oversees everything in the financial sector that affects consumers — from credit cards, to mortgages, to auto and student loans. In its short history, the agency has responded so quickly and forcefully to allegations of consumer harm that few have questioned its expanding authority or overlapping jurisdiction with other federal regulators.

Last week, the CFPB issued its third annual report on student loan complaints. The agency first created a platform for student loan complaints in 2012, and embarked on a massive solicitation for general comment on private student loans in 2013. Shortly after, CFPB brought private non-bank loan servicers under its oversight authority.

At first glance, the report paints a picture of student borrowers victimized by unscrupulous private lenders and loan servicers. Complaints regarding loans and loan servicers are up 38 percent year over year, with many complaints indicating private lenders and servicers “provided no options [to modify repayment plans], leading the borrower to default.” Complaints against student loan giant Navient (formerly Sallie Mae) were up a staggering 48 percent, with the entire rise dubiously occurring in the month of December. An unwary reader could easily conclude that the private student-loan market is the heart of the student debt crisis, squeezing hardworking young college graduates of every dollar.

But a closer look reveals the report is fundamentally flawed. Although such a database is valuable for identifying concerns and promoting accountability, it should never be used as stand-alone justification for new regulation or policy. Yet that is exactly what this report does — it is basing policy recommendations simply on a compilation of unsubstantiated complaints.

Worse, the report is misleading in two big ways. First, the report makes the private student-loan market seem entirely to blame for the growing student debt crisis. And second, it offers no analytical evidence that private student lenders are unwilling to work with struggling borrowers.

Continue reading at The Hill.

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