18902 Federal Register / Vol. 78, No. 60 / Thursday, March 28, 2013 / Proposed Rules 

1Public Law 111–203 (codified at 12 U.S.C. 5301 

et seq.). 

mail, or other means according to rules 

and regulations recommended by the 

committee and approved by the 

Secretary. 

Proposal Number 6 

■ 9. In § 905.42 revise the first sentence 

of paragraph (a) to read as follows: 

§ 905.42 Handler’s accounts. 

(a) If, at the end of a fiscal period, the 

assessments collected are in excess of 

expenses incurred, the committee, with 

the approval of the Secretary, may carry 

over such excess into subsequent fiscal 

periods as a reserve: Provided, That 

funds already in the reserve do not 

exceed approximately two fiscal 

period’s expenses. * * * 

Proposal Number 7 

■ 10. In § 905.52 revise paragraphs (a)(4) 

and (a)(5) to read as follows: 

§ 905.52 Issuance of regulations. 

(a) * * * 

(4) Establish, prescribe, and fix the 

size, capacity, weight, dimensions, 

marking (including labels and stamps), 

or pack of the container or containers 

which may be used in the packaging, 

transportation, sale, shipment, or other 

handling of fruit: Provided, That such 

regulation shall not authorize the use of 

any container or markings which are 

prohibited under Florida statutes and 

regulations effective thereunder. 

(5) Provide that any or all 

requirements effective pursuant to 

paragraphs (a) (1), (2), (3), and (4) of this 

section applicable to the handling of 

fruit may be different for the handling 

of fruit within the production area, the 

handling of fruit for export, or for the 

handling of fruit between the 

production area and any point outside 

thereof within the United States: 

Provided, That such requirements shall 

not authorize the handling of fruit in 

any way that is prohibited under Florida 

statutes and regulations effective 

thereunder. 

* * * * * 

Proposal Number 8 

■ 11. Revise § 905.28 to read as follows: 

§ 905.28 Qualification and Acceptance. 

Any person nominated to serve as a 

member or alternate member of the 

committee shall, prior to selection by 

the Secretary, qualify by filing a written 

qualification and acceptance statement 

indicating such person’s qualifications 

and willingness to serve in the position 

for which nominated. 

Proposal Number 9 

■ 12. Revise § 905.7 to read as follows: 

§ 905.7 Handler. 

Handler is synonymous with shipper 

and means any person (except a 

common or contract carrier transporting 

fruit for another person) who, as owner, 

agent, or otherwise, handles fruit in 

fresh form, or causes fruit to be handled. 

Each handler shall be registered with 

the committee pursuant to rules 

recommended by the committee and 

approved by the Secretary. 

Proposal submitted by USDA: 

Proposal Number 10 

Make other such changes as may be 

necessary to the order to conform with 

any amendment thereto that may result 

from the hearing. 

Dated: March 22, 2013. 

Rex A. Barnes, 

Acting Administrator, Agricultural Marketing 

Service. 

[FR Doc. 2013–07180 Filed 3–27–13; 8:45 am] 

BILLING CODE 3410–02–P 

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. 

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 

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Federal Register / Vol. 78, No. 60 / Thursday, March 28, 2013 / Proposed Rules 18903 

2The 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’’). 

5The 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). 

6The 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. 

7 12 U.S.C. 5514(b)(1). 

8See 12 U.S.C. 5514(b) (authorizing the Bureau 

both to conduct examinations and to require reports 

from entities subject to supervision). 

9CFPB Supervision and Examination Manual 

(October 1, 2012), available at http:// 

www.consumerfinance.gov/guidance/supervision/ 

manual/. 

10CFPB Supervision and Examination Manual, 

Education Loan Examination Manual (December 17, 

2012), available at http:// 

files.consumerfinance.gov/f/ 

201212_cfpb_educationloanexamprocedures.pdf. 

11The 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’’). 

12 12 CFR 1090.100–103. 

13 77 FR 42874, 42875 (Consumer Reporting 

Rule); 77 FR 65775, 65777 (Consumer Debt 

Collection Rule). 

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

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

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

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 onsite examination and then coordinate 

with the entity to initiate the on-site 

portion of the examination. While onsite, 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. 

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. 

II. Summary of Proposed Rule 

The Bureau’s existing largerparticipant 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 § 1090.101 should be 

used, unless otherwise specified, when 

interpreting terms in this Proposed 

Rule. 

As the Bureau has previously 

explained, it will include relevant 

market descriptions and largerparticipant tests, as it develops them, in 

subpart B.13 Accordingly, the Proposed 

Rule defining larger participants of the 

student loan servicing market would 

become § 1090.106 in subpart B. 

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18904 Federal Register / Vol. 78, No. 60 / Thursday, March 28, 2013 / Proposed Rules 

14As 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. 

15Although 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. 17 5 U.S.C. 553(d). 

18Throughout this notice of proposed 

rulemaking, the terms ‘‘student loan’’ and ‘‘postsecondary education loan’’ are used 

interchangeably. 

19See 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. 

20 20 U.S.C. 1078(b), (c). 

21See Public Law 111–152, §§ 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). 

23Most of the initial Direct loan servicing 

business went to one entity: Affiliated Computer 

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. 

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 § 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

Pursuant to existing § 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. 

IV. Section-By-Section Analysis 

Subpart B—Markets 

Section 1090.106—Student Loan 

Servicing Market 

Proposed § 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 postsecondary 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. 

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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Federal Register / Vol. 78, No. 60 / Thursday, March 28, 2013 / Proposed Rules 18905 

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. 

24The 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. 

25See 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. 

26See 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. 

27See 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 

28See 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. 

29As 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/fsareport.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 

30College Board Advocacy & Policy Center 

Report, Trends in College Pricing 2012, p. 7 (Oct. 

2012). 

31College Board Advocacy & Policy Center, 

Trends in Student Aid 2012, p. 4 (Oct. 2012). 

32As reported in Number of the Week: Class of 

2011, Most Indebted Ever, Wall Street Journal, May 

7, 2011. 

33College Board Advocacy & Policy Center, 

Trends in College Pricing 2012, p. 4 (Oct. 2012). 

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. 

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 notfor-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

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. 

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 

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34Activities 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). 

35For 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. 

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. 

37Ancillary 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. 

38See 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/aasaadmin.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. 

39The Bureau recognizes that some covered 

persons may not receive servicing fees on a peraccount 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.’’ 

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. 

Section 1090.106(a)—Market-Related 

Definitions 

Unless otherwise specified, the 

definitions in § 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 largerparticipant 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 § 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. 

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. 

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 Federallyowned 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. 

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 

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40This example assumes that each company is 

receiving only a single stream of fees for each of the 

10 students. 

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. 

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. 

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 § 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 § 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 postsecondary 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 postsecondary 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 postsecondary education loan is typically 

not secured. 

Student loan servicing. Proposed 

§ 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

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 lowincome 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. 

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42Although 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 cosigner 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. 

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

44To 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. 

45 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 

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). 

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. 

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. 

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

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 

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46As 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. 

47 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 

48The 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. 

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. 

52Specifically, 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. 

53The 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). 

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

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

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

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 DoddFrank 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. 

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. 

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. 

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18910 Federal Register / Vol. 78, No. 60 / Thursday, March 28, 2013 / Proposed Rules 

55Pursuant 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. 

56National Postsecondary Student Aid Study 

2008 (hereinafter NPSAS 2008). 

57Another 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. 

58 Department of Education, Federal Student Aid 

Annual Report, p. 2 (2012). 

59NPSAS 2008. 

60See 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. 

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. 

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

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

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. 

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 

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Federal Register / Vol. 78, No. 60 / Thursday, March 28, 2013 / Proposed Rules 18911 

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). 

62Among 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). 

63 15 U.S.C. 1693e. 

64Recent 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 IntraMonthly 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 automaticdebit student loan payments. 

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). 

69As 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. 

71 12 U.S.C. 5531. 

72The 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. 

73See 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. 

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

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

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

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. 

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74The 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. 

75See 12 U.S.C. 5515; 12 U.S.C. 5516. 

76See 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/rloansoverview.pdf. 

78 20 U.S.C. 1070 et seq. 

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. 

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. 

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 

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79Further 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. 

80Mortgage 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. 

81This 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 onsite 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. 

82Bureau 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. 

83All figures assume 40 hours of work per week. 

84The 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/aasaadmin.pdf. The same source reports that not-forprofit 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. 

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

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, onsite 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 onsite, 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 fulltime 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

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 

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18914 Federal Register / Vol. 78, No. 60 / Thursday, March 28, 2013 / Proposed Rules 

85An entity may receive revenue from other 

sources. 

86Assuming 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. 

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. 

89See 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 

90For Federal Direct and Federally-owned FFELP 

loans, the concept of borrower and account are 

identical. 

91SAFRA—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. 

92 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 

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

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 DoddFrank 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

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 largerparticipant 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 notfor-profit servicers (NFPs): Each NFP is 

limited to servicing at most 100,000 

Federal accounts at a time.91

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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93See 20 U.S.C. 1087e. 

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. 

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 


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18916 Federal Register / Vol. 78, No. 60 / Thursday, March 28, 2013 / Proposed Rules 

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 notfor-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. 

96 5 U.S.C. 609. 

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 largerparticipant threshold. 

99A 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. 

100As 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. 

101The 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. 

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

The RFA generally requires an agency 

to conduct an initial regulatory 

flexibility analysis (IRFA) of any 

proposed rule subject to notice-andcomment 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

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 largerparticipant 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. 

For these reasons, the Proposed Rule 

would not have a significant impact on 

a substantial number of small entities.99

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

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

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 

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Federal Register / Vol. 78, No. 60 / Thursday, March 28, 2013 / Proposed Rules 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 

■ 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). 

■ 2. Add a new § 1090.106 to subpart B 

to read as follows: 

§ 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 postsecondary 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 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2013–0211; Directorate 

Identifier 2012–NM–230–AD] 

RIN 2120–AA64 

Airworthiness Directives; The Boeing 

Company Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: We propose to adopt a new 

airworthiness directive (AD) for certain 

The Boeing Company Model 747–100, 

–100B, –100B SUD, –200B, –200C, 

–200F, –300, –400, –400D, –400F, and 

747SR series airplanes. This proposed 

AD was prompted by reports of cracking 

at the aft upper corner of the main entry 

door (MED) 5 cutout. This proposed AD 

would require inspecting for the 

presence of repairs and measuring the 

edge margin at certain fastener locations 

around the upper aft corner of the door 

cutout, inspecting for any cracking of 

the fuselage skin assembly and bear 

strap in the aft upper corner area of the 

door cutout, and repairing or modifying 

the fuselage skin assembly and bear 

strap if necessary. We are proposing this 

AD to detect and correct cracking of the 

skin and bear straps at the aft upper 

corner of the MED 5 cutout, which 

could result in in-flight 

depressurization. 

DATES: We must receive comments on 

this proposed AD by May 13, 2013. 

ADDRESSES: You may send comments, 

using the procedures found in 14 CFR 

11.43 and 11.45, by any of the following 

methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: 202–493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue SE., 

Washington, DC 20590. 

• Hand Delivery: Deliver to Mail 

address above between 9 a.m. and 5 

p.m., Monday through Friday, except 

Federal holidays. 

For service information identified in 

this proposed AD, contact Boeing 

Commercial Airplanes, Attention: Data 

& Services Management, P.O. Box 3707, 

MC 2H–65, Seattle, WA 98124–2207; 

telephone 206–544–5000, extension 1; 

fax 206–766–5680; Internet https:// 

www.myboeingfleet.com. You may 

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