Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations 73383 

1 78 FR 18902 (Mar. 28, 2013). 

2Public Law 111–203, 124 Stat. 1376 (2010) 

(codified at 12 U.S.C. 5301 et seq.). 

3The 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). 

4 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); see also 12 CFR 

part 1091 (prescribing procedures for making 

determinations under 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). 

5 12 U.S.C. 5514(a)(1)(B), (a)(2); see also 12 U.S.C. 

5481(5) (defining ‘‘consumer financial product or 

service’’). 

6 12 U.S.C. 5514(b)(1). 

7See 12 U.S.C. 5514(b) (authorizing the Bureau 

both to conduct examinations and to require reports 

from entities subject to supervision). 

SAR Title: Final Safety Analysis 

Report for the HI–STORM 100 Cask 

System. 

Docket Number: 72–1014. 

Certificate Expiration Date: May 31, 

2020. 

Model Number: HI–STORM 100. 

* * * * * 

Dated at Rockville, Maryland, this 2nd day 

of December 2013. 

For the Nuclear Regulatory Commission. 

Michael R. Johnson, 

Acting Executive Director for Operations. 

[FR Doc. 2013–29162 Filed 12–5–13; 8:45 am] 

BILLING CODE 7590–01–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: Final rule. 

SUMMARY: The Bureau of Consumer 

Financial Protection (Bureau or CFPB) 

amends 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 is issuing the 

final 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. 

Rules defining larger participants of a 

market for consumer reporting and 

larger participants of a market for 

consumer debt collection were 

published in the Federal Register on 

July 20, 2012 (Consumer Reporting 

Rule) and October 31, 2012 (Consumer 

Debt Collection Rule). This final rule 

identifies a market for student loan 

servicing and defines ‘‘larger 

participants’’ of this market that are 

subject to the Bureau’s supervisory 

authority. 

DATES: Effective March 1, 2014. 

FOR FURTHER INFORMATION CONTACT: 

Allison Brown, Program Manager, (202) 

435–7107, Amanda Quester, Senior 

Counsel, (202) 365–0702, or Brian 

Shearer, Attorney, (202) 435–7794, 

Office of Supervision Policy, Bureau of 

Consumer Financial Protection, 1700 G 

Street NW., Washington, DC 20552. 

SUPPLEMENTARY INFORMATION: On March 

28, 2013, the Bureau published a notice 

of proposed rulemaking proposing to 

define larger participants of a market for 

student loan servicing.1 The Bureau is 

issuing this final rule to define larger 

participants of the identified market 

(Final Rule). 

I. Overview 

Title X of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(Dodd-Frank Act) 2 established the 

Bureau on July 21, 2010. Under 12 

U.S.C. 5514, the Bureau has supervisory 

authority over all nonbank covered 

persons 3 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.4

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.5

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.6 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.7

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 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 preparations for the 

on-site portion of an examination by 

contacting an entity for an initial 

conference with management, and often 

by also requesting records and other 

information. Bureau examiners will 

ordinarily also review the components 

of the supervised entity’s compliance 

management system. Based on these 

discussions and a preliminary review of 

the information received, examiners 

determine the scope of an on-site 

examination and then coordinate with 

the entity to initiate the on-site portion 

of the examination. While on-site, 

examiners spend a period of time 

holding discussions with management 

about the entity’s policies, processes, 

and procedures; reviewing documents 

and records; testing transactions and 

accounts for compliance; and evaluating 

the entity’s compliance management 

system. 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 

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73384 Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations 

8CFPB Supervision and Examination Manual 

(Oct. 31, 2012), available at http://

www.consumerfinance.gov/guidance/supervision/

manual/. 

9The CFPB Supervision and Examination 

Manual’s Education Loan Examination Procedures 

can be accessed at http://

www.consumerfinance.gov/guidance/supervision/

manual/. 

10The Bureau’s supervisory 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’’). 

11The Final Rule describes a market for consumer 

financial products or services, which the Final Rule 

labels ‘‘student loan servicing.’’ The definition does 

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 Final Rule. 

12 78 FR 18902 (Mar. 28, 2013). 

13 12 CFR 1090.100–103. 

14 77 FR 42874, 42875 (July 20, 2012) (Consumer 

Reporting Rule); 77 FR 65775, 65777 (Oct. 31, 

2012), as corrected at 77 FR 72913 (Dec. 7, 2012) 

(Consumer Debt Collection Rule). 

15As discussed below, student loans include 

those under Title IV of the Higher Education Act 

of 1965, 20 U.S.C. 1070 et seq., and, with limited 

exceptions, those that are otherwise extended to a 

consumer in order to pay post-secondary education 

expenses. 

16Although the Bureau is adopting account 

volume as the criterion for identifying larger 

participants of 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 (July 20, 2012) (Consumer 

Reporting Rule); 77 FR 65775, 65778 (Oct. 31, 2012) 

(Debt Collection Rule). 

procedures. This manual is available on 

the Bureau’s Web site.8 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. The Bureau has released 

procedures specific to education 

lending and servicing for use in the 

Bureau’s examinations.9 The Bureau 

also plans to use those examination 

procedures in supervising nonbank 

larger participants of the student loan 

servicing market. 

This Final Rule establishes a category 

of covered persons that are subject to 

the Bureau’s supervisory authority 10

under 12 U.S.C. 5514 by defining 

‘‘larger participants’’ of a market for 

student loan servicing.11 The Final Rule 

pertains only to that purpose and does 

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. Background 

On March 28, 2013, the Bureau 

published a notice of proposed 

rulemaking proposing to define larger 

participants of a market for student loan 

servicing (Proposed Rule).12 The Bureau 

requested and received public comment 

on the Proposed Rule. The Bureau 

received 59 comments on the Proposed 

Rule from, among others, consumer 

groups, industry trade associations, 

companies, State-affiliated agencies, and 

individuals. The comments are 

discussed in more detail below in the 

section-by-section analysis. 

The Proposed Rule included a test to 

assess whether a nonbank covered 

person is a larger participant of the 

student loan servicing market. Under 

this test, a nonbank covered person with 

an account volume exceeding one 

million, as described in the Proposed 

Rule, would be a larger participant of 

the student loan servicing market. 

III. Summary of the Final 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.13 Those generally 

applicable provisions, which are 

codified in subpart A, also are 

applicable for the student loan servicing 

market described by this Final Rule. The 

definitions in § 1090.101 should be 

used, unless otherwise specified, when 

interpreting terms in this Final Rule. 

As the Bureau has previously 

explained, it will include relevant 

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

subpart B.14 Accordingly, the Final Rule 

defining larger participants of the 

student loan servicing market amends 

Part 1090 by adding § 1090.106 in 

subpart B. 

The Final Rule is 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 Final Rule 

defines a student loan servicing market 

that would cover the servicing of both 

Federal and private student loans.15

Under the Final Rule, ‘‘student loan 

servicing’’ means (1) receiving loan 

payments (or receiving notification of 

payments) and applying payments to 

the borrower’s account pursuant to the 

terms of the post-secondary education 

loan or of the contract governing the 

servicing; (2) during periods when no 

payments are required, maintaining 

account records and communicating 

with borrowers on behalf of loan 

holders; or (3) interactions with 

borrowers, including activities to help 

prevent default, conducted to facilitate 

the foregoing activities. The Final Rule 

also sets 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 are subject to the 

Bureau’s supervision authority, the 

Bureau is adopting a test based on the 

number of accounts on which an entity 

performs student loan servicing. The 

Final Rule defines the criterion 

‘‘account volume,’’ which reflects the 

number of accounts for which an entity 

and its affiliated companies were 

considered to perform student loan 

servicing as of December 31 of the prior 

calendar year.16 An entity is a larger 

participant if its account volume 

exceeds one million. As prescribed by 

existing § 1090.102, any nonbank 

covered person that has qualified as a 

larger participant will remain a larger 

participant until two years after the first 

day of the tax year in which the person 

last met the applicable test. 

Pursuant to existing § 1090.103, a 

person can dispute whether it qualifies 

as a larger participant in the student 

loan servicing market. The Bureau will 

notify an entity when the Bureau 

intends to undertake supervisory 

activity; the entity will then have an 

opportunity to submit documentary 

evidence and written arguments that it 

is 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 will 

be available to the Bureau for facilitating 

its identification of larger participants of 

the student loan servicing market, just 

as in other markets. 

IV. Legal Authority and Procedural 

Matters 

A. Rulemaking Authority 

The Bureau is issuing this Final 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. 

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Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations 73385 

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

18Throughout this preamble, the terms ‘‘student 

loan’’ and ‘‘post-secondary education loan’’ are 

used interchangeably. 

19See 20 U.S.C. 1078–2 (describing the Federal 

PLUS loan 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 Final Rule, such a refinancing 

would also be considered a student loan. 

20Coll. Bd. Advocacy & Policy Ctr., Trends in 

College Pricing 2012, at 4 (Oct. 2012). 

21Coll. Bd. Advocacy & Policy Ctr., Trends in 

College Pricing 2012, at 7 (Oct. 2012). 

22Coll. Bd. Advocacy & Policy Ctr., Trends in 

Student Aid 2012, at 4 (Oct. 2012). 

23These figures reflect one nonprofit 

organization’s estimate of the percentage of 2010– 

2011 bachelor’s degree recipients with student loan 

debt at public and private nonprofit four-year 

colleges and the average cumulative debt level for 

those with loans. See The Inst. for Coll. Access & 

Success, Student Debt and the Class of 2011, at 2 

(2012), available at http://projectonstudentdebt.org/ 

files/pub/classof2011.pdf. 

24As of September 30, 2012, the total Federal 

student aid loan portfolio amounted to $948 billion. 

U.S. Dep’t of Educ., Federal Student Aid Annual 

Report 2 (2012), available at http://www2.ed.gov/

about/reports/annual/2012report/fsa-report.pdf. 

The Department of Education and the Bureau have 

together estimated that American consumers owe 

more than $150 billion in outstanding private 

student loans. CFPB & Dep’t of Educ., Private 

Student Loans 17 (Aug. 29, 2012) (report to the 

Senate Committee on Banking, Housing, and Urban 

Affairs, the Senate Committee on Health, Education, 

Labor, and Pensions, the House Committee on 

Financial Services, and the House Committee on 

Education and the Workforce), available at http:// 

files.consumerfinance.gov/f/201207_cfpb_Reports_

Private-Student-Loans.pdf. Since the Proposed Rule 

was issued, the Board of Governors for the Federal 

Reserve has published data on total outstanding 

student loan debt that includes all holders of 

student loans, including the Federal government. 

Bd. of Governors of the Fed. Reserve Sys., Federal 

Reserve Statistical Release G.19 (Oct. 7, 2013), 

available at http://www.federalreserve.gov/releases/ 

g19/Current/g19.pdf. Consistent with the estimates 

from the Department of Education and CFPB noted 

above, the Federal Reserve estimates principal 

balance of outstanding student loan debt as of 

December 31, 2012 to be approximately $1.1 

trillion. Id. 

25 ‘‘Servicing loans’’ is a ‘‘consumer financial 

product or service’’ pursuant to the Dodd-Frank 

Act. See 12 U.S.C. 5481(15)(A)(i) (defining 

‘‘financial product or service,’’ including 

‘‘extending credit and servicing loans’’); see also 12 

U.S.C. 5481(5) (defining ‘‘consumer financial 

product or service’’). 

5512(b)(1), which grants the Bureau the 

authority to prescribe rules as may be 

necessary or 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. 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 

proposed that the Final Rule would be 

effective at least 60 days after 

publication and received no comments 

relating to the effective date. The Bureau 

adopts March 1, 2014, as the effective 

date for the Final Rule, which is more 

than 60 days after publication. 

V. Section-By-Section Analysis 

Section 1090.106—Student Loan 

Servicing Market 

Section 1090.106 relates to student 

loan servicing. The student loan 

servicing market is composed of entities 

that service Federal and private student 

loans that have been disbursed to pay 

for post-secondary education 

expenses.18 Students may obtain 

Federal student loans to fund their own 

post-secondary education expenses; a 

parent or guardian of a student may also 

obtain certain Federal student loans to 

fund that student’s post-secondary 

education expenses.19 A private student 

loan may be available to any individual 

willing to help secure funding for postsecondary education expenses. 

Student loans are essential for many 

students to obtain post-secondary 

education and are a significant part of 

the nation’s economy, as several 

industry and consumer group 

commenters recognized in their 

comments. In fact, during the last 

decade, a greater proportion of 

Americans than ever pursued postsecondary education; from fall 2000 to 

fall 2010, the number of undergraduate 

students increased by 45 percent.20 At 

the same time, 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.21 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. From the academic year 

2001–2002 to 2011–2012, the average 

total borrowing per student increased by 

55 percent.22 According to one recent 

estimate, two-thirds (66 percent) of 

college seniors who graduated in 2011 

had student loan debt, with an average 

of $26,600 for those with loans.23 As of 

the end of 2012, the principal balance 

of outstanding student loan debt totaled 

approximately $1.1 trillion, and student 

loans were the largest category of nonmortgage debt in the United States.24

Student loan servicers play a critical 

role in the student loan market. 

Servicing, in general, is the day-to-day 

management of a borrower’s loan. 

Servicers’ duties typically include 

maintaining account records regarding a 

borrower, sending periodic statements 

advising borrowers about amounts due 

and outstanding balances, receiving 

payments from borrowers and allocating 

them among various loans and loan 

holders, answering borrower questions, 

reporting to creditors or investors, and 

attempting default aversion activities for 

delinquent borrowers. Servicers receive 

scheduled periodic payments from 

borrowers pursuant to the terms of their 

loans (or notification of such payments 

if borrowers are instructed to send 

payments to a lockbox service or other 

third party), 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. 

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 also may send 

statements of such amounts to the 

borrower. 

In short, most borrowers, once they 

have obtained their loans, conduct 

almost all transactions relating to their 

loans through student loan servicers. 

The Final Rule will 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.25

Several commenters stated that it is 

essential to supervise this market due to 

the substantial impact that student loan 

servicers can have on a borrower’s 

experience with student loans. One 

commenter also stated that greater 

oversight is needed due to the size of 

the market, uneven existing oversight, 

and the particular vulnerability of 

student loan borrowers. That 

commenter noted that education loan 

borrowers are not able to choose their 

loan servicers. It also observed that 

student borrowers, who are often young 

at the time of origination, may be 

signing loan agreements for the first 

time, and that disclosures to co-signers 

may be limited. 

A number of consumer groups and 

individual commenters expressed 

concerns about this market. One 

commenter noted that according to the 

2012 Annual Report of the CFPB 

Student Loan Ombudsman, 65 percent 

of complaints received by the Bureau 

about student loans related to 

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73386 Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations 

26A commenter urged the Bureau to conclude 

that, as a consequence of 12 U.S.C. 5517(e), the 

Bureau cannot exercise supervisory authority over 

collection attorneys acting as service providers to 

student loan servicers. The purpose of the Final 

Rule is to define the scope of the student loan 

servicing market, not to define the scope of 

supervision of any particular service provider. The 

Bureau’s authority to supervise service providers to 

supervised nonbanks is established and regulated 

by the Dodd-Frank Act. 

27A commenter argued that, because the student 

loan servicing industry is already subject to 

numerous Federal and State regulations, the Final 

Rule may ‘‘create[ ] duplicative and potentially 

inconsistent compliance obligations.’’ The 

commenter requested that the Bureau make clear 

that ‘‘conduct that complies with applicable Federal 

regulations, including [Department of Education] 

regulations, also complies with the CFPB’s 

requirements for enforcement or supervision 

purposes.’’ But the Final Rule does not create any 

new ‘‘compliance obligation’’ of the type that 

concerns the commenter. Nothing in the Final Rule 

requires loan servicers to engage in, or refrain from, 

any particular conduct. Instead, the Final Rule 

identifies those persons that are subject to Bureau 

supervision as larger participants of the student 

loan servicing market. In addition, the requirements 

of Department of Education regulations are not 

coextensive with those imposed by the statutes and 

regulations enforced by the Bureau. Accordingly, 

compliance with the Department of Education’s 

regulations does not necessarily satisfy a servicer’s 

obligation to comply with Federal consumer 

financial laws. 

28See, e.g., 12 U.S.C. 5515(a) (establishing the 

Bureau’s supervisory authority over very large 

depository institutions and credit unions and their 

affiliates). 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). 

29 20 U.S.C. 1071 et seq. 

30Public Law 111–152, §§ 2101–2213, 124 Stat. 

1029, 1071–81 (2010). The Direct Loan Program 

actually began in 1992, see Public Law 102–325, 

§§ 451–52, 106 Stat. 569–76 (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. 

31 20 U.S.C. 1087f(b). 

32Most of the initial Direct Loan servicing 

business went to one entity: Affiliated Computer 

Services, Inc. (ACS). As the Department of 

Education began contracting with additional 

servicers, those additional servicers became Title IV 

Additional Servicers. In order to avoid confusion, 

when the Bureau uses the term TIVAS, the Bureau 

means to refer also to ACS, the original servicer of 

Federal Direct loans. 

repayment and servicing. Consumer 

groups also provided examples that they 

said show dysfunction in the servicing 

process for both Federal and private 

student loans. Among other things, 

these groups noted that many borrowers 

have reported difficulties with 

repayment plans and forbearances. The 

groups attribute many of these 

complaints to the transfer of servicing 

within the William D. Ford Federal 

Direct Loan Program (as discussed 

below), which they say has resulted in 

many borrowers being placed in the 

wrong repayment plan or inadvertently 

missing payments. These groups also 

noted that borrowers have reported 

problems with private student loan 

servicers that claim to lack authority to 

approve relief options for borrowers. 

One trade association took a different 

view, asserting that current laws, 

including the Higher Education 

Opportunity Act (HEOA) and the Truth 

in Lending Act (TILA) and their 

implementing regulations already 

protect student borrowers. This trade 

association asserted that the Bureau 

needs to explain the problem it is trying 

to address and the alternatives it 

considered before proceeding with this 

rulemaking.26

In response to these comments, the 

Bureau notes that it has wide discretion 

in choosing markets in which to define 

larger participants. The Bureau need not 

conclude, before issuing a rule defining 

larger participants, that the market 

identified in the rule has a higher rate 

of noncompliance, poses a greater risk 

to consumers, or is in some other sense 

more important to supervise than other 

markets. Indeed, 12 U.S.C. 5514(b)(1) 

recognizes that the purposes of 

supervision include assessing 

compliance and risks posed to 

consumers. Thus, the Bureau is not 

required to determine the level of 

compliance and risk in a market before 

issuing a larger-participant rule.27

The student loan servicing market is 

a reasonable choice for the Bureau. 

Because student loan servicing is an 

important activity that affects millions 

of consumers, supervision of larger 

participants of this market will be 

beneficial to both consumers and the 

market as a whole. Supervision of larger 

participants of the student loan 

servicing market will help the Bureau 

ensure that these market participants are 

complying with applicable Federal 

consumer financial law and will help 

the Bureau detect and assess risks to 

consumers and to the market. The 

supervision program thereby will 

further the Bureau’s mission to ensure 

consumers’ access to fair, transparent, 

and competitive markets for consumer 

financial products and services. 

The existence of substantive Federal 

consumer financial laws that govern 

student loan servicing, including TILA, 

does not undermine the need for this 

rulemaking. Indeed, one purpose of the 

supervision program established by the 

Final Rule will be to oversee nonbank 

compliance with existing Federal 

consumer financial laws and assess 

risks to consumers in the student loan 

servicing market. 

As one industry commenter 

recognized, establishment of 

supervision over larger nonbank 

participants in the student loan 

servicing market is also appropriate 

because banks that engage in student 

loan servicing already are subject to 

Federal supervision with respect to 

Federal consumer financial law.28

Extending supervisory coverage to larger 

nonbank participants will help ensure 

that nonbank student loan servicers are 

subject to comparable scrutiny. 

Student loan 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).29 FFELP loans were funded by 

private lenders, guaranteed by entities 

that are generally State-affiliated or notfor-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, new originations under FFELP 

were discontinued, and the U.S. 

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.30 Direct 

loans are serviced by entities that 

contract with the Department of 

Education pursuant to Title IV of the 

Higher Education Act of 1965.31 These 

entities are known as Title IV 

Additional Servicers (TIVAS).32 Third, 

the student loan market includes private 

student loans made without Federal 

involvement. Private student loans are 

usually serviced either by the 

originating institutions or by other, 

nonbank entities. The same nonbank 

entities awarded servicing rights under 

the TIVAS contracts may also service 

both legacy FFELP loans and private 

student loans. 

The student loan servicing market 

includes fewer than 50 nonbank 

servicers. As discussed below, 

approximately 33 guaranty agencies also 

engage in student loan servicing 

activities by providing default aversion 

services in connection with FFELP 

loans. The student loan servicing market 

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33The Bureau has estimated entity-level data for 

nonbank student loan servicers as of December 31, 

2012, based mainly on the 2012 Student Loan 

Servicing Alliance (SLSA) Servicing Volume 

Survey, to which most nonbank servicers reported 

data as of December 31, 2011. Depository 

institutions also service student loans, but they do 

not report to SLSA and will not be larger 

participants under this Final Rule. To construct its 

estimates for nonbank servicers, 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 Dep’t of 

Educ., Federal Student Aid Annual Report 2 (2012), 

available at http://www2.ed.gov/about/reports/

annual/2012report/fsa-report.pdf. (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. In response to a comment discussed 

below, the Bureau has updated these calculations 

to include guaranty agencies that provide default 

aversion services. The resulting Bureau estimates 

are cited hereinafter as ‘‘2012 SLSA Servicing 

Volume Survey, augmented by CFPB estimates.’’ 

34See 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. Because the Bureau 

does not have data directly on servicers’ ‘‘account 

volume’’ as defined in the Final Rule, the Bureau 

has used data on both unpaid principal balance and 

number of borrowers to estimate market share. The 

Bureau calculated the lower end of the market-share 

range using data regarding unpaid principal 

balance. In making this calculation, the Bureau 

used its estimate of $1.1 trillion in outstanding 

student loan debt as the denominator. Because the 

$1.1 trillion estimate includes unpaid principal 

balance serviced by both banks and nonbanks, and 

because the relevant market includes only servicing 

by nonbanks, the Bureau expects the TIVAS’ actual 

share of the nonbank student loan servicing market 

to be somewhat larger than the lower end of the 

range. The Bureau calculated the upper end of the 

range using data reported to SLSA regarding the 

number of borrowers for whom loans are serviced. 

The calculation is slightly different from the 

Bureau’s estimate when it issued the Proposed Rule 

because the Bureau has now factored in guaranty 

agencies that provide default aversion services. This 

likely overestimates market coverage because there 

may be nonbanks engaged in ‘‘student loan 

servicing’’ as defined in the Final Rule that do not 

report to SLSA and that are not included in the 

Bureau’s augmented analysis due to insufficient 

data. Indeed, as one commenter noted, the 2012 

SLSA Servicing Volume Survey is a voluntary 

survey of participating SLSA members’ servicing 

volume and does not purport to be a definitive 

survey of the marketplace, though it does provide 

a snapshot of the participating servicers’ volume as 

of December 31, 2011. However, the Bureau need 

not resolve these uncertainties regarding market 

share to issue the Final Rule. As discussed below, 

the approximately seven entities that will likely 

qualify as larger participants under the Bureau’s 

Final Rule engage in substantially more market 

activity than the next largest participants, evaluated 

under any of the proposed criteria. 

35See HCERA/SAFRA—Not-For-Profit (NFP) 

Servicer Program documentation, as of Sept. 25, 

2013 (showing firms that contract servicing rights 

to other entities), available at https://www.fbo.gov/ 

spg/ED/FSA/CA/NFP-RFP-2010/listing.html. 

36See 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 

37See HCERA/SAFRA—Not-For-Profit (NFP) 

Servicer Program documentation, as of Sept. 25, 

2013 (showing firms that contract servicing rights 

to other entities), available at https://www.fbo.gov/ 

spg/ED/FSA/CA/NFP-RFP-2010/listing.html. 

38 In 2011, these 33 guaranty agencies reported a 

total of approximately $111 million in net default 

aversion fee revenue to the Department of 

Education. Fed. Student Aid, FY 2011 Summary of 

Guaranty Agency Financial Reports, available at 

http://www.fp.ed.gov/attachments/publications/

EDForms2000DataFY11AnnualReport.pdf 

(summation of row AR–30). The guaranty agencies’ 

default aversion activities are discussed in more 

detail in the Threshold section below. 

39Several commenters advocated using the 

number of borrowers or the number of loans that 

a servicer handles to assess whether an entity is a 

larger participant. Those comments are discussed 

below, in connection with § 1090.106(b). 

40The number of accounts generally will 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 will be included in the calculation of 

account volume. 

41For 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. 

is heavily concentrated.33 As measured 

by unpaid principal balance and by 

number of borrowers with loans being 

serviced, five nonbanks, the TIVAS, 

account for between approximately 67 

percent and 87 percent of activity in the 

market.34 There are only a few 

nonbanks in the middle tier of this 

market, each with a market share that is 

slightly greater than 1 percent. Many of 

the firms in this middle tier service 

loans placed with them by smaller 

nonbanks that are in the lowest tier of 

the market.35 Finally, the lowest tier of 

the market includes a few dozen smaller 

nonbank servicers, each of which has 

only a fraction of a percent in market 

share.36 Many of these smaller nonbanks 

are not-for-profit entities or closely 

associated with State or local 

governments, and at least half of them 

contract to other firms the servicing of 

the loans for which they have servicing 

rights.37 As noted, approximately 33 

guaranty agencies also participate in the 

servicing market by providing default 

aversion services, but available data 

indicate that these entities’ default 

aversion activities do not constitute a 

significant share of the student loan 

servicing market.38

Section 1090.106(a)—Market-Related 

Definitions 

Unless otherwise specified, the 

definitions in § 1090.101 should be used 

when interpreting terms in the Final 

Rule. The Final Rule defines additional 

terms relevant to the student loan 

servicing market. These terms include 

‘‘student loan servicing,’’ which 

delineates the scope of the identified 

market; ‘‘post-secondary education 

expenses’’; ‘‘post-secondary education 

loan’’; and ‘‘account volume.’’ 

Account volume. The Bureau received 

a few comments related to the definition 

of ‘‘account volume,’’ which the Bureau 

proposed as the criterion that would 

determine whether an entity is a larger 

participant of the student loan servicing 

market.39 For the reasons explained 

below, the Bureau has adopted the 

definition of ‘‘account volume’’ as 

proposed. 

Section 1090.106(a) defines the term 

‘‘account volume’’ as the number of 

accounts with respect to which a 

nonbank covered person is considered 

to perform student loan servicing and 

contains instructions for calculating 

account volume.40 Account volume is 

based on the number of students or 

prior students with respect to whom a 

nonbank 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.41 In each of these examples, 

the student whose post-secondary 

education expenses a loan funded 

represents at least one account, even if 

the student is not an obligor on the loan. 

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 typically 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 

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42 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. 

43Ancillary 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. 

44See Title IV Redacted Contract Awards 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 

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 Final Rule) to be $1.68 per 

month, based on the contractual prices and the 

proportion of borrowers with different repayment 

statuses. Id. 

45Bd. of Governors of the Fed. Reserve Sys., 

Federal Reserve Statistical Release G.19 (Oct. 7, 

2013), available at http://www.federalreserve.gov/

releases/g19/Current/g19.pdf; CFPB & Dep’t of 

Educ., Private Student Loans 17 (Aug. 29, 2012) 

(report to the Senate Committee on Banking, 

Housing, and Urban Affairs, the Senate Committee 

on Health, Education, Labor, and Pensions, the 

House Committee on Financial Services, and the 

House Committee on Education and the Workforce), 

available at http://files.consumerfinance.gov/f/

201207_cfpb_Reports_Private-Student-Loans.pdf; 

Dep’t of Educ., Federal Student Aid Annual Report 

2 (2012), available at http://www2.ed.gov/about/

reports/annual/2012report/fsa-report.pdf. 

student through two different 

securitization vehicles. These different 

holders of the student’s loans may all 

retain the same servicer, which may 

maintain separate accounts for the 

different loans.42 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. Under 

the Final Rule, the criterion for largerparticipant status will recognize these 

separate accounts as additional 

servicing activity. 

To provide a straightforward 

understanding of what constitutes an 

‘‘account,’’ the Final Rule counts each 

separate stream of fees to which a 

servicer is entitled for servicing postsecondary education loans with respect 

to a given student or prior student.43

The Bureau believes that student loan 

servicers are generally compensated, on 

a monthly basis, at a fixed rate for each 

account. For Federal Direct loans and 

Federally-owned FFELP loans, this 

compensation structure is determined 

by contract with the Department of 

Education, and the average fee rate for 

2013 was estimated to be $1.68 per 

month per account.44 In total, according 

to Bureau analysis of available 

Department of Education data and other 

sources, these loans make up greater 

than 50 percent of the total outstanding 

dollar volume of student loans and more 

than 90 percent of all new student loan 

originations.45 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 same basic 

compensation structure appears to be 

common throughout the student loan 

servicing market. 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. 

One trade association commented 

that, while uncommon, in some 

instances, servicer compensation is 

calculated as a percentage of the 

aggregate principal balance of all loans 

serviced. This commenter asked 

whether such servicers have just one 

income stream. The Bureau recognizes 

that some nonbank covered persons may 

not receive servicing fees on a peraccount basis. This might occur, for 

example, in the unusual circumstance 

where a servicer is compensated based 

on aggregate principal balance for all 

loans in its portfolio, regardless of the 

student or prior student to whom the 

loans correspond. Similarly, a nonbank 

covered person might not be 

compensated on a per-account basis for 

servicing of loans it holds. For such a 

person, each student or prior student 

whose education is funded by a loan 

will still count as one account under the 

proposed definition of ‘‘account 

volume’’ that the Bureau is adopting in 

the Final Rule, regardless of whether the 

student or former student is an obligor 

on the loan. 

Another trade association stated that 

the Proposed Rule was not sufficiently 

clear to permit servicers to compute the 

number of accounts they service and 

posed two hypothetical questions that it 

said highlighted the rule’s lack of 

clarity. First, the commenter asked 

whether there would be one or at least 

two income streams if a servicer is paid 

by a lender for servicing both FFELP 

loans and private education loans for a 

particular student or former student. 

Pursuant to the Final Rule, the answer 

would depend on whether the servicer 

receives separate fees for its services on 

the FFELP loans and private education 

loans, information that should be 

readily available to the servicer. If the 

servicer receives a fee for the FFELP 

loans and a separate fee for the private 

education loans of a particular 

borrower, there would be two accounts 

for this borrower. If the servicer receives 

one fee for all of the loans, there would 

only be one account for this borrower. 

Second, the commenter asked whether 

there would be one income stream or 

four income streams if a servicer is paid 

by a lender on a per-loan basis for 

servicing where a borrower has four 

outstanding private education loans. 

Because the Final Rule provides that a 

‘‘nonbank covered person has one 

account for each stream of fees to which 

the person is entitled,’’ the hypothetical 

servicer would have four accounts for 

this borrower. The Bureau regards these 

consequences as straightforward 

applications of the definition of 

‘‘account volume’’ and does not believe 

they show the definition to be unclear. 

A commenter expressed concern 

about the Bureau’s use of the term 

‘‘student or prior student’’ in the 

Proposed Rule’s section-by-section 

analysis and asked that the Bureau 

instead use ‘‘borrower’’ in the sectionby-section analysis of the Final Rule in 

order to clarify that a parent borrowing 

on behalf of a student is a separate 

consumer. Other commenters also 

suggested using ‘‘borrower’’ in the 

definition of ‘‘number of accounts’’ and 

offered a possible definition of 

‘‘borrower.’’ Paragraph (i) of the account 

volume definition in the Proposed Rule 

said: ‘‘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.’’ The Bureau’s 

use of the term ‘‘student or prior 

student’’ was not meant to suggest that 

a student and a parent borrowing on 

behalf of that student are generally the 

same consumer. However, the Bureau 

believes that it is important for the 

definition of ‘‘account volume’’ to refer 

to a ‘‘student’’ rather than a ‘‘borrower.’’ 

The difference between the two terms, 

as used in the definition of ‘‘account 

volume,’’ would be most significant for 

a servicer that does not receive 

compensation on a per-account basis. 

As discussed above, such a servicer has 

at least one account for each student 

with respect to which the servicer is 

servicing loans. The Bureau prefers 

‘‘student or prior student’’ for these 

purposes because ‘‘student or prior 

student’’ provides a clear reference to a 

single individual and avoids the 

complexities, described in the 

§ 1090.106(b) criterion discussion 

below, that may be associated with 

counting borrowers in situations 

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46As noted above, the term ‘‘student or prior 

student’’ includes any student or prior student 

whose post-secondary education expenses are or 

were funded by one or more post-secondary 

education loan(s) that the servicer is servicing, 

regardless of whether the student or prior student 

is an obligor on the loan(s). If a servicer is not 

compensated on a per-account basis and a student 

and the student’s parent(s) borrow independently of 

each other for the student’s higher education 

expenses, the Bureau recognizes that by using 

‘‘student or prior student’’ in the definition of 

account volume the student and the student’s 

parent(s) will be counted as just one account. The 

Bureau believes that this circumstance would only 

occur rarely. 

47Pursuant to the definition of account volume, 

each person’s number of accounts as of the prior 

calendar year’s December 31 will be aggregated 

together where two persons become affiliated 

companies in the middle of that prior year. As a 

further consequence of the definition, where two 

affiliated companies cease to be affiliated 

companies in the middle of a year, the account 

volume of each will continue to include the other’s 

number of accounts until the succeeding December 

31. 

48This example assumes that each company is 

receiving only a single stream of fees for each of the 

10 students. 

49One commenter suggested that the Bureau 

prevent evasion by aggregating accounts of firms 

that act as agents or are under contract to another 

firm in addition to affiliated companies. The Bureau 

will apply the definition in 12 CFR 1090.101 to 

determine whether an entity is an ‘‘affiliated 

company.’’ In developing that definition, the 

Bureau considered whether to expand aggregation 

to include contractors or agents. 77 FR 42874, 

42877 (July 20, 2012). The reasons the Bureau gave 

at that time for aggregating only the activity of 

‘‘affiliated companies,’’ as defined in the rule, are 

valid for this market as well. 

50Loans for refinancing or consolidating postsecondary education loans would also be 

considered post-secondary education loans. 

However, loans under an open-end credit plan or 

secured by real property are not post-secondary 

education loans. 

involving co-makers, co-signers, or 

endorsers.46

The definition attributes to a nonbank 

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 the Final Rule—under 12 

U.S.C. 5514(a)(1). In the consumer 

reporting and consumer debt collection 

markets, the Bureau 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 

proposed a similar calculation for 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 

numbers of accounts serviced by all 

affiliated companies.47 The calculation 

would add together each account on 

which any affiliated company was 

providing student loan servicing. For 

example, if two affiliated companies 

each serviced the loans of 10 students, 

each of the two companies’ account 

volume would be 20.48 The calculation 

would be the same even if the 

companies service loans for some of the 

same students. 

Several commenters expressed 

support for the Bureau’s proposed 

method of aggregating accounts of 

affiliated companies for the purpose of 

calculating account volume, and the 

Bureau received no comments objecting 

to the proposed method.49 For the 

reasons described above and in the 

Proposed Rule, the Bureau adopts the 

aggregation method as proposed. 

Post-secondary education expenses. 

The Bureau proposed to define the term 

‘‘post-secondary education expenses’’ to 

mean 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. The Bureau received 

support and no comments raising 

concerns regarding this definition and 

adopts the definition as proposed. 

Post-secondary education loan. The 

Bureau proposed to define the term 

‘‘post-secondary education loan’’ as 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.50 The Bureau 

received a number of comments related 

to the definition of ‘‘post-secondary 

education loan,’’ and the Bureau is 

adopting the proposed definition in the 

Final Rule, with only technical changes, 

for the reasons described below. 

Loans made to parents or other third 

parties. A number of consumer groups 

requested that the Bureau clarify that 

the definition includes loans made to 

parents or other third-parties to pay for 

a student’s educational expenses. Some 

of the groups suggested that the Bureau 

replace ‘‘consumer’’ with ‘‘borrower’’ in 

the definition of ‘‘post-secondary 

education loan’’ and define ‘‘borrower’’ 

as ‘‘a person who has obtained a postsecondary education loan for the 

borrower or a third-party.’’ The Bureau 

recognizes that 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. As the 

Bureau explained in the Proposed Rule, 

such a loan would be a ‘‘post-secondary 

education loan’’ under the definition as 

originally proposed because the term 

‘‘post-secondary education loan’’ 

includes a loan made to a parent, 

guardian, or other consumer to fund the 

post-secondary education expenses of a 

student who is not a borrower. Thus, the 

Bureau concludes that it is not 

necessary to add a definition of 

‘‘borrower’’ or to change the definition 

of ‘‘post-secondary education loan.’’ 

Open-end loans and loans secured by 

real property. Consumer groups also 

urged the Bureau to remove the 

definition’s exclusions for open-end 

loans, as defined by the Bureau’s 

Regulation Z, 12 CFR 1026.2(a)(20), and 

loans secured by real property (such as 

residential mortgages or reverse 

mortgages), if they are expressly 

marketed as student loans. These groups 

advocated for including such loans 

within the definition of ‘‘post-secondary 

education loan,’’ arguing that the goal 

should be to protect student loan 

borrowers as a whole, rather than 

creating technical distinctions. One 

trade association also urged that the 

Bureau, if it did not use the existing 

TILA definition as discussed below, 

include open-end credit plans in its 

definition of post-secondary education 

loan, noting that the needs of consumers 

who use open-end credit plans to pay 

for post-secondary expenses are 

essentially identical to those of users of 

traditional private student loans. 

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 

the reasons set forth below, the Bureau 

concludes that it is appropriate to 

exclude these two categories of credit 

from the defined category of ‘‘postsecondary education loan,’’ as originally 

proposed. 

First, the Bureau believes that openend loans and loans secured by real 

estate are sufficiently different from 

conventional student loans such that it 

would not be advisable to include them 

in the definition of ‘‘post-secondary 

education loan.’’ Such loans and postsecondary education loans as defined in 

this Final Rule are typically serviced 

separately due in part to the different 

features of these types of loans. The 

commenters suggested that the Bureau 

did not provide any evidence on this 

point, but they offered no reason to 

think the Bureau was mistaken. 

Indeed, as the Bureau indicated in 

proposing the rule, multiple differences 

between these forms of credit suggest 

that a given servicer is unlikely to 

handle servicing, in the same portfolio 

and using the same procedures, of both 

student loans and either credit cards or 

home equity loans. The platforms that 

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51See 12 U.S.C. 5514(b)(1); 77 FR 42874, 42880 

(July 20, 2012) (‘‘[I]f an entity is subject to the 

Bureau’s supervisory authority, the Bureau may 

examine the entire entity for compliance with all 

Federal consumer financial law, assess enterprisewide compliance systems and procedures, and 

assess and detect risks to consumers or to markets 

for consumer financial products and services posed 

by any activity of the entity, not just the activities 

that initially rendered the entity subject to Bureau 

supervision.’’). 

52Public Law 110–315, 122 Stat. 3078 (2008). 

53 15 U.S.C. 1650(a)(7)(A)(i). 

54 12 CFR 1026.46(b)(5). 

55See 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 

are used to service post-secondary 

education loans, including private 

student loans, have in many instances 

evolved out of program-specific 

requirements, such as those of the Title 

IV/FFELP guidelines. Similarly, the 

platforms used for credit cards or home 

equity loans have been developed to 

suit the structures of those loans, the 

applicable regulatory obligations, and 

the requirements of loan holders. For 

example, servicing of loans secured by 

real estate must account for escrow 

payments, if applicable, and must 

comply with mortgage-specific 

regulatory requirements. Credit card 

servicers typically do not aggregate 

credit card accounts for single billing in 

the manner that a student loan servicer 

might, and unlike student loan 

servicers, credit card servicers post 

purchase transactions on a daily basis. 

In addition, credit card servicers must 

manage balances that revolve on a 

monthly basis. Meanwhile, even if 

incurred for education purposes, credit 

card debt and loans secured by real 

estate also typically lack some of the 

standard features of student loans, such 

as the initial period in which no 

payments are required. 

Commenters stated that structural 

differences of this nature are an 

insufficient reason to exclude servicing 

of these other types of loans from the 

market and that the Bureau’s rule 

should include in the market servicing 

of as many types of student loans as 

possible. The Bureau disagrees. The 

purpose of the Final Rule is to define 

the student loan servicing market for 

purposes of its nonbank supervision 

program. Even if some credit cards or 

home equity loans are marketed at 

origination for use in paying 

educational expenses, the servicing of 

such loans is nonetheless separate from 

the servicing of conventional student 

loans. 

Second, pursuant to 12 U.S.C. 5514, 

the Bureau has supervisory authority, 

independent of the Final Rule, over 

nonbank covered persons that offer or 

provide origination or servicing of 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 and service providers 

pursuant to 12 U.S.C. 5515. Indeed, one 

of the three examples cited by the 

commenters is a credit card issued by a 

large bank that already is subject to the 

Bureau’s supervisory authority. 

The commenters stated that even if 

such loans are serviced by entities 

already within the Bureau’s authority 

those entities should be subject to 

supervision as student loan servicers 

under this larger participant rule. They 

asserted that the existence of 

supervisory authority over some of these 

entities under different auspices is 

irrelevant. The Bureau disagrees. If an 

entity is already subject to the Bureau’s 

supervisory authority, the Bureau may 

examine the entire entity for compliance 

with all Federal consumer financial law 

and assess and detect risks to consumers 

or to markets for consumer financial 

products and services posed by any 

activity of the entity, not just the 

activities that initially rendered the 

entity subject to Bureau supervision.51

In light of this existing authority, it is 

not necessary to define as larger 

participants entities that are otherwise 

under the Bureau’s supervision, because 

the Bureau already can supervise the 

servicing activities in which such 

entities may engage regarding student 

loans. 

As the commenter points out, there 

may be entities that are not currently 

supervised by the Bureau that service 

open-end loans for the purpose of 

financing a consumer’s higher education 

costs. Because open-end loans are not 

widely offered for educational purposes, 

including the servicing of these loans in 

the market would not change the set of 

entities subject to Bureau supervision 

under any of the thresholds considered 

by the Bureau. But regardless, the 

Bureau believes that the considerations 

described above regarding how these 

loans differ from conventional student 

loans justify defining the market 

without including the servicing of these 

loans. For all of these reasons, the 

Bureau has decided not to include openend and real-estate secured loans in the 

definition of ‘‘post-secondary education 

loan.’’ 

Truth in Lending Act definition of 

‘‘private education loan.’’ The definition 

of ‘‘post-secondary education loan’’ 

helps determine the scope of the student 

loan servicing market identified by the 

rule, because the market activities 

involve servicing of ‘‘post-secondary 

education loans.’’ Two trade 

associations commented that the Bureau 

should align the definition of ‘‘postsecondary education loan’’ with the 

definition of ‘‘private education loan’’ 

that appears in 15 U.S.C. 1650(a)(7) and 

in Regulation Z, 12 CFR 226.46(b)(5). As 

in previous larger-participant rules, the 

Bureau does not intend its definitions to 

mirror the scope of definitions in TILA 

or other Federal consumer financial law. 

The Final Rule and TILA serve different 

purposes. TILA is a substantive 

consumer protection statute that 

regulates the origination and servicing 

of consumer credit. As amended by the 

Higher Education Opportunity Act,52

TILA prescribes certain disclosure and 

timing rules that apply specifically to a 

category of loans, ‘‘private education 

loans,’’ defined in the statute. The Final 

Rule, by contrast, defines larger 

participants of a market for student loan 

servicing for purposes of delineating, in 

part, the scope of the Bureau’s 

supervisory authority. The Bureau 

emphasizes that the definitions in the 

Final Rule are relevant only to that 

purpose and have no applicability to the 

scope, coverage, definitions, or any 

other provisions of TILA or any other 

law or regulation. 

The definition of ‘‘private education 

loan’’ in Regulation Z that the 

commenters asked the Bureau to adopt 

differs in at least two ways from the 

definition of ‘‘post-secondary education 

loan.’’ First, Regulation Z, in accordance 

with the TILA definition, includes only 

loans that are ‘‘not made, insured, or 

guaranteed under title IV of the Higher 

Education Act of 1965.’’ 53 Thus, 

Federal loans are not ‘‘private education 

loans’’ under TILA and Regulation Z. 

Second, Regulation Z further excludes 

loans that have a term of 90 days or less 

or that have a term of one year or less 

and no interest rate.54

The Bureau believes that servicing of 

both Federal loans and short-term loans 

should be included in the identified 

student loan servicing market. First, 

Federal loans are commonly serviced by 

private nonbank servicers, accounting 

for roughly 30 million borrowers at the 

seven largest nonbank servicers.55 These 

companies typically use similar 

platforms for servicing both Federal and 

private loans, and servicing for both 

kinds of loans affects consumers in 

similar ways. Indeed, one of the two 

commenters that urged the Bureau to 

model its definition of ‘‘post-secondary 

education loan’’ on the TILA definition 

of ‘‘private education loan’’ 

simultaneously urged the Bureau to 

ensure that it supervises the servicing of 

Federal loans. This commenter argued 

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56Contrary to the suggestion of a commenter, a 

decision to include servicing of short-term loans in 

the market identified by the Final Rule does not 

constitute a repudiation of the reasons the Federal 

Reserve Board gave for excluding such loans from 

the category of ‘‘private education loans.’’ The 

Board concluded that the particular disclosure and 

timing requirements applicable to that category of 

loans are not necessary for the excluded short-term 

loans. 74 FR 41194, 41204–05 (Aug. 14, 2009) 

(noting, inter alia, that the waiting period required 

by the HEOA could delay disbursement of a shortterm emergency loan). The Board did not suggest 

that short-term student loans warrant no consumer 

protections or administrative oversight. As noted 

below, such loans remain subject to other 

requirements of TILA and Regulation Z, as well as 

other applicable Federal consumer financial law. 

57 77 FR 42874, 42883 (July 20, 2012) (Consumer 

Reporting Rule). 

58See American Heritage Dictionary (5th ed. 

2011) (listing, as the principal meaning of ‘‘other,’’ 

‘‘being the remaining ones of several’’). 

that borrowers of Federal student loans 

should receive the same benefits of 

Bureau oversight as borrowers of private 

student loans. The Bureau agrees. 

Second, servicing of short-term loans 

can give rise to many of the same 

concerns as longer-term loans.56 For 

example, servicers of short-term loans 

may have obligations under the Fair 

Credit Reporting Act, 15 U.S.C. 1681 et 

seq. And their work may pose risks to 

consumers, if, for example, they 

maintain account records inaccurately, 

fail to provide basic account 

information, or misinform consumers. 

The Bureau seeks in this Final Rule to 

address the impact that the servicing of 

student loans, including short-term 

loans, has on the lives of post-secondary 

education students and former students 

and their families. 

The Bureau stresses that it need not 

identify specific risks associated with 

either type of loan before including 

servicing of such loans in the market. As 

the Bureau has observed before, it need 

not reach any conclusions about the 

extent of noncompliance in a market 

before defining larger participants of the 

market.57 The Bureau has identified the 

student loan servicing market not just to 

include risky behavior, but to 

encompass a set of activities that are 

related. Servicers handling Federal 

loans and servicers handling short-term 

loans are all participating in the process 

of managing student loans and 

interactions with borrowers. Aside from 

the specific requirements applicable 

solely to ‘‘private education loans’’ 

under TILA, many other legal 

requirements apply to both these 

servicing activities and servicing of 

‘‘private education loans.’’ To the extent 

that the risks attendant on servicing 

differ between loans that are or are not 

‘‘private education loans,’’ the Bureau 

can adjust the scope and focus of its 

supervision activities accordingly. 

One trade association also suggested 

that the Bureau’s potential supervisory 

authority in this area is actually limited 

to ‘‘private education loans.’’ The 

association noted that 12 U.S.C. 

5514(a)(1)(D) gives the Bureau 

supervisory authority over nonbank 

institutions that offer or provide loans 

that are ‘‘private education loans’’ as 

defined by TILA. Meanwhile, under 12 

U.S.C. 5514(a)(1)(B), the Bureau defines 

larger participants of markets for ‘‘other 

consumer financial products or 

services.’’ The association argued that 

because paragraph (D) covers private 

education loans, student loans are not 

an ‘‘other consumer financial product or 

service’’ and cannot be the subject of a 

rule under 12 U.S.C. 5514(a)(1)(B). 

The commenter’s argument is unclear, 

because the market defined by the Final 

Rule includes the servicing of many 

loans that are not ‘‘private education 

loans.’’ This market activity is not 

‘‘offer[ing] or provid[ing] . . . private 

education loan[s],’’ and it is therefore an 

‘‘other’’ consumer financial product or 

service. The commenter suggested that 

the Bureau’s authority under section 

5514(a)(1)(B) is limited to entities that 

offer or provide loans that are not 

addressed elsewhere in section 

5514(a)(1), as private education loans 

are. Thus, the commenter appears 

implicitly to have assumed that all 

activity relating to student loans is the 

same type of consumer financial 

product or service as the business of 

offering or providing a private education 

loan. In the commenter’s view, as the 

Bureau understands it, section 

5514(a)(1)(D) describes all the student 

loans that Congress wanted to be subject 

to the Bureau’s supervisory authority. 

So ‘‘other’’ consumer financial products 

or services should be wholly distinct 

from the category of student loans for 

which Congress already decided the 

scope of the Bureau’s authority. 

The Bureau disagrees. The better 

reading, in light of the purposes of the 

provision, is that ‘‘other’’ simply means 

‘‘remaining’’ consumer financial 

products or services, i.e. those with 

respect to which section 5514(a) does 

not expressly provide the Bureau 

supervisory authority.58 The Final Rule, 

which identifies a market for servicing 

post-secondary education loans as 

defined in the Final Rule, achieves the 

statutory purpose: It defines the larger 

participants of a market that includes 

products and services other than 

‘‘offer[ing] or provid[ing] . . . private 

education loan[s]’’ as defined in TILA. 

Of course, the market defined by the 

Final Rule does include servicing 

activities related to private education 

loans as well. But the commenter offers 

no reason to think that a largerparticipant rule must avoid any possible 

overlap with one of the categories 

expressly enumerated in section 

5514(a)(1). The word ‘‘other’’ was not 

meant to limit the Bureau’s rulemaking 

authority in this area. The purpose was 

simply to permit the Bureau to expand 

its supervisory authority beyond what 

section 5514(a)(1) explicitly prescribes. 

Consistent with that purpose, the 

Bureau can identify a market that both 

overlaps with the enumerated categories 

and includes other consumer financial 

products or services. Nonbank entities 

that offer or provide private education 

loans to consumers are already subject 

to the Bureau’s supervisory authority. 

But the Bureau can reasonably take 

account of their activity in identifying a 

market for other products or services 

and deciding how to define larger 

participants of the market. 

Finally, the commenters suggested 

that the difference between the 

definition of ‘‘post-secondary education 

loan’’ and the Regulation Z definition of 

‘‘private education loan’’ might 

complicate implementation of the new 

Rule and industry compliance. These 

commenters did not explain how such 

consequences might arise, and the 

Bureau does not believe the Final Rule’s 

definition will complicate either 

implementation or industry compliance. 

The commenters may be assuming that 

servicers will need to calculate whether 

they are larger participants to determine 

whether they need to comply. However, 

the Final Rule does not impose any 

substantive compliance obligations and 

does not require such a calculation. 

Generally, an entity will need to 

calculate its account volume only if it 

decides to dispute that it is a larger 

participant when the Bureau initiates 

supervision activity, such as an 

examination or a requirement that the 

company provide reports to the Bureau. 

Student loan servicing. The Bureau 

proposed to 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 postsecondary education loan is deferred, 

maintaining account records for the loan 

and communicating with the borrower 

regarding the loan, on behalf of the 

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59One commenter stated that entities that provide 

a third-party servicing system or communicate with 

borrowers but do not receive payments or maintain 

account records should not be considered to be 

engaged in ‘‘student loan servicing.’’ An entity that 

provides a software system but does not itself apply 

payments to specific borrower accounts or interact 

with borrowers would not be engaged in ‘‘student 

loan servicing.’’ By contrast, an entity that 

communicates with borrowers could be engaged in 

‘‘student loan servicing’’ under the Final Rule, 

depending on the purpose of its borrower 

interactions. For example, the default aversion 

services that a guaranty agency provides pursuant 

to the Department of Education’s regulations would 

be included in the market, as discussed in more 

detail below. 

loan’s holder. The proposed definition 

would also have made clear that student 

loan servicing includes interactions 

with a borrower to facilitate such 

activities. The Bureau received a 

number of comments on the proposed 

definition. In response to these 

comments, the Bureau is adopting the 

proposed definition with several 

adjustments, as explained below. 

Activities required for ‘‘student loan 

servicing.’’ One commenter suggested 

that activity should not be included 

within the defined market unless the 

entity engages in all of the activities 

listed in the proposed definition of 

‘‘student loan servicing.’’ The Bureau 

declines to adopt this suggestion 

because in some circumstances multiple 

entities may contribute in handling an 

account. For example, some companies 

may perform specialized servicing 

functions, such as the default aversion 

services discussed below, but may not 

perform other servicing operations. The 

Bureau believes the companies’ 

activities should nonetheless be 

considered part of the identified market. 

Otherwise, servicers might divide their 

activities among different entities in an 

attempt to evade supervision. In 

addition, the activities of maintaining 

account records and communicating 

with a borrower take place during a 

period when no payments are due on 

the borrower’s loan. Such a period may 

last for years, for example while the 

student is in school. The Bureau 

believes a servicer’s activities during 

such a period regarding a borrower 

should be included in the market to the 

same extent as servicing activities 

performed when payments are due. 

Lockbox services. The Bureau is 

changing the first sentence of the 

proposed definition of ‘‘student loan 

servicing’’ to address comments 

received relating to the use of a lockbox 

and similar services. A servicer noted in 

its comment that the first sentence of 

the definition refers to ‘‘receiving’’ 

payments even though servicers of 

Federally-owned loans have no direct 

role in the receipt of borrower 

payments. As the commenter explained, 

the collection of such payments is 

instead performed by the U.S. Treasury 

and its contractors, independent of the 

servicer. A trade association commenter 

raised a similar issue, expressing 

concern that organizations that provide 

some, but not all, of the activities listed 

in the proposed definition of ‘‘student 

loan servicing’’ would inappropriately 

be considered student loan servicers. 

The trade association stated that an 

organization should not be considered a 

servicer if it only accepts payments for 

a servicer (for example, by providing 

‘‘lockbox’’ services). 

The Bureau does not believe servicing 

activity should be excluded from the 

market merely by virtue of the fact that 

the servicer uses a lockbox service to 

collect payments. But the Bureau agrees 

that the lockbox service, i.e. the function 

of merely receiving payments for a loan 

holder and providing notification to a 

servicer, should not itself be considered 

student loan servicing for purposes of 

the Final Rule. To make clear that 

servicing with the assistance of a 

lockbox service is nonetheless market 

activity, the Bureau has inserted the 

words ‘‘or notification of such 

payments’’ after ‘‘receiving any 

scheduled periodic payments from a 

borrower’’ in the first sentence of the 

Final Rule’s definition of ‘‘student loan 

servicing.’’ To make clear that a lockbox 

service that simply receives and remits 

money without handling borrowers’ 

accounts is not a market participant, the 

Bureau has further revised this sentence 

of the definition by substituting 

‘‘applying payments to the borrower’s 

account’’ for ‘‘making the payments of 

principal and interest and other 

amounts with respect to the amounts 

received from the borrower.’’ By 

‘‘applying payments,’’ the Bureau means 

the activity of adjusting the amount of 

principal, interest, or other amounts due 

on an account when payments are 

received from the borrower. A lockbox 

that merely receives payments and 

passes them on would not engage in 

‘‘student loan servicing’’ under the Final 

Rule’s definition because it does not 

apply payments (part of the defined 

activity in paragraph (i)) or 

communicate or otherwise interact with 

the borrower (as in paragraphs (ii) or 

(iii)).59

Guaranty Agencies and Default 

Aversion Services. A guaranty agency 

submitted a comment expressing 

concern that guaranty agencies could be 

interpreted to be engaging in ‘‘student 

loan servicing.’’ The commenter stated 

that the Bureau should exclude guaranty 

agencies by adding a definition of 

‘‘student loan servicer’’ that is limited to 

entities performing student loan 

servicing at the direction of and under 

contract with the loan holder and 

owner. 

As the commenter explained, 

guaranty agencies engage in a variety of 

activities, including assisting borrowers 

in applying for Federal student loans, 

completing program reviews, providing 

default aversion services, and 

administering and collecting payments 

on loans in default. The commenter 

asserted that guaranty agencies perform 

their functions on behalf of the 

Department of Education as fiduciaries 

and that those functions are unrelated to 

the Bureau’s consumer protection 

mission. It also noted that guaranty 

agencies do not take payments for nondefaulted loans or grant deferments or 

forbearances, although they do conduct 

default aversion services prior to default 

and collect on defaulted loans. 

The Bureau believes that servicing 

another servicer’s account should be 

considered an activity that is within the 

market and that limiting the market 

definition to activities performed at the 

direction of and under contract with the 

loan holder and owner could be read to 

exclude these activities. Under certain 

circumstances, a servicer performs 

much or all of the activity described by 

the proposed definition, but it does so 

under contract with another servicer, 

which in turn is under contract to the 

loan’s holders. The focus of the Bureau’s 

supervision program is on servicing as 

it is provided to consumers. Therefore, 

for purposes of this rule, the Bureau 

believes the activities described above 

should be considered part of the market 

to the same extent as though the 

subservicer were under contract directly 

with the loan holder. The Bureau 

therefore has decided not to adopt the 

definition of ‘‘student loan servicer’’ 

suggested by the commenter. 

The commenter also urged the Bureau 

not to include default aversion services 

in the student loan servicing market. 

The proposed definition of ‘‘student 

loan servicing’’ expressly mentioned 

such activity, and the commenter 

pointed to this aspect as another way 

the Bureau could refine the definition to 

exclude guaranty agencies. The Bureau 

believes it is appropriate to include 

default aversion services, even when 

conducted as a standalone servicing 

function, in the student loan servicing 

market. As the Proposed Rule 

explained, the Bureau regards default 

aversion activities as closely connected 

to the core aspects of student loan 

servicing—receiving and applying 

payments and maintaining account 

records and communicating with 

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60One commenter requested that the Bureau 

clarify its description of a servicer’s role in 

modifying a borrower’s payment plan. The Bureau 

understands that certain servicers may have limited 

or no discretion in the loan amounts or interest 

rates modified. But the Bureau believes that even 

where the servicers’ role involves only 

communicating the borrower’s extenuating 

circumstances to the loan holder, informing the 

borrower, and modifying the borrower’s account in 

accordance with directions from the loan holder, 

these services are closely connected to the core of 

servicing. 

61 Default on a Federal student loan has an 

additional deleterious consequence: A loan in 

default may not qualify for income-based 

repayment, an alternative plan under which a lowincome borrower may be able to reduce his or her 

monthly payments. 

62 34 CFR 682.404(a)(2)(ii). 

63Further, if the default aversion services fail and 

the borrower defaults, the guaranty agency must 

return the fee it received for providing the services, 

34 CFR 682.404(k)(2)(ii), and the guaranty agency 

shares a loss on the default because part of its 

function is to insure lenders against loss on student 

loans. Under Department of Education regulations, 

a guaranty agency guarantees no more than 97 

percent of the unpaid balance of defaulted loans 

that were disbursed on or after July 1, 2006; a 

lender thus bears at least 3 percent of the loss. 34 

CFR 682.401(b)(14). The guaranty agency’s interests 

in the outcome of default aversion are comparable 

to those of the loan’s primary servicer, which will 

lose from default because the loan servicer’s 

functions (and compensation) with respect to the 

borrower will terminate. 

64As discussed above, the definition the Bureau 

is adopting also includes receiving notice of 

payments, and it replaces remitting payments with 

applying payments to borrowers’ accounts. 

65A commenter expressed concern that the 

proposed definition of ‘‘student loan servicing’’ 

might be read to include third-party service 

providers that assist schools by providing default 

prevention services. Such services are often 

provided in an effort to improve the schools’ cohort 

default rates under the Higher Education Act of 

1965, 20 U.S.C. 1070 et seq., and its implementing 

regulations, 34 CFR parts 600 et seq. Whether 

entities performing default aversion activities are 

engaged in ‘‘student loan servicing’’ under the Final 

Rule will depend on the purpose for which the 

services are performed. If they are done to facilitate 

the activities described in paragraphs (i) or (ii) of 

the Final Rule’s definition, they will be ‘‘student 

loan servicing.’’ 

66While account volume may not correlate 

perfectly with the amount of consumer interaction, 

the Bureau believes the two are reasonably related. 

For example, although account volume may not 

reflect the number of co-signers on borrowers’ 

Continued 

borrowers.60 The Bureau recognizes that 

many student loan servicers perform or 

subcontract default aversion activities 

for loans that they are servicing. In 

addition, 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 and a damaged credit profile.61

Default aversion can help protect 

consumers from certain risks; but, when 

not conducted in compliance with 

applicable law, default aversion can 

exacerbate those risks or create others. 

The Bureau expects to assess those risks 

in its supervision of larger participants 

of the student loan servicing market. 

These potential risks are not limited to 

entities that work for the owner of the 

note and instead result from the nature 

of the activity, regardless of any other 

functions the entities may perform. 

The default aversion services 

provided by guaranty agencies in 

particular should be within the defined 

market because they are similar to those 

provided by traditional servicers. Under 

Department of Education regulations, a 

guaranty agency’s default aversion 

services consist of ‘‘activities . . . 

designed to prevent a default by a 

borrower who is at least 60 days 

delinquent and that are directly related 

to providing collection assistance to the 

lender.’’ 62 A guaranty agency may 

contact a borrower and urge the 

borrower to bring the loan current. As 

part of these efforts, the agency may 

suggest forbearance, deferment, or 

various repayment plans. The agency 

may provide the borrower information 

that will help the borrower assess his or 

her eligibility for various options. The 

Bureau believes borrowers perceive 

these communications no differently 

from communications that the borrower 

has received from the servicer of the 

borrower’s loan. Thus, when a guaranty 

agency provides default aversion 

services, it plays a role that is, from the 

borrower’s perspective, likely to be 

indistinguishable from the role of a 

servicer.63

The Bureau believes the proposed 

definition of ‘‘student loan servicing’’ 

appropriately reflected these 

considerations. The proposed market 

definition included interactions with a 

borrower to facilitate the core servicing 

activities of receiving and remitting 

payments or maintaining records and 

communicating about them with a 

borrower.64 The word ‘‘facilitate’’ 

indicates that the interactions included 

within the market are only those that are 

related to the core servicing activities 

and are performed in order to make 

those activities, particularly receiving 

payments, more likely to succeed. To 

clarify further that the purpose of an 

interaction with a borrower is important 

for determining whether it is ‘‘student 

loan servicing,’’ the Bureau is using the 

phrase ‘‘conducted to facilitate,’’ rather 

than simply ‘‘to facilitate.’’ The Bureau 

has also consolidated the final two 

sentences of the definition to ensure 

that it is clear that activities to prevent 

default on obligations arising from postsecondary education loans only 

constitute servicing if they are 

conducted to facilitate the core servicing 

activities described in paragraphs (i) or 

(ii) of the definition. The Bureau is also 

making several structural changes to the 

definition, relative to the Proposed Rule, 

to simplify the definition.65

Periods when no payment is required. 

The Bureau has adjusted the clause of 

the definition that addresses periods 

when payments are not required on the 

loan. As proposed, the definition would 

have included maintaining account 

records and communicating with a 

borrower ‘‘during a period when 

payment on a post-secondary education 

loan is deferred.’’ However, the Bureau 

intends this clause to apply during all 

periods when no payment is required on 

a loan, including, for example, periods 

of forbearance. To ensure this is clear, 

the definition as adopted refers to ‘‘a 

period when no payment is required.’’ 

Section 1090.106(b)—Test To Define 

Larger Participants 

Criterion. The Bureau has broad 

discretion in choosing a criterion for 

assessing whether a nonbank covered 

person is a larger participant of a market 

within which the Bureau will conduct 

supervision. The Bureau proposed to 

use account volume as the criterion that 

determines which entities are larger 

participants of a market for student loan 

servicing. The Bureau invited comment 

on this proposal, and also asked for 

comment regarding two other possible 

criteria: total amount of unpaid 

principal balance and number of 

student loans serviced. The Bureau also 

invited suggestions for other criteria that 

commenters believed might be superior. 

Comments from several consumer 

groups and one trade association 

supported using account volume as the 

measure of market participant size. On 

the other hand, a number of industry 

comments suggested that the Bureau 

instead use either number of borrowers 

or number of loans as the criterion. For 

the reasons set out below, the Bureau 

has adopted account volume as the 

criterion in § 1090.106(b), as proposed. 

The Bureau believes that account 

volume is the 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. Each account represents a 

regular series of interactions with at 

least one consumer. Account volume 

should therefore appropriately reflect 

the comparative amount of consumer 

impact of various servicers.66 Second, 

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loans, the Bureau believes that servicers’ 

interactions with co-signers are relatively 

infrequent compared to their interactions with 

borrowers. A servicer typically deals with a cosigner only when the borrower has failed to make 

payments. 

67See, e.g., 2012 SLSA Servicing Volume Survey. 

68The number of students with respect to whom 

a servicer is servicing loans is not identical to the 

number of borrowers, but the Bureau expects the 

differences to be fairly small. 

69 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. Data from SLSA and 

other sources do not reveal any entities servicing 

between approximately 350,000 borrowers and 1.4 

million borrowers. 

70One servicer also noted that data are reported 

to the National Student Loan Data System (NSLDS) 

at the loan level. However, the data reported to the 

NSLDS do not include private loans. 

71There is no industry-wide definition of a 

student loan because there is not a uniform system 

for reporting loans in the marketplace. Only Federal 

student loans are reported in the NSLDS. Although 

many servicers have reported their loan volume to 

SLSA, SLSA has not established standards for 

counting loans or borrowers. To establish a clear 

criterion for determining larger-participant status 

based on loan volume, the Bureau would need to 

choose a particular understanding of what 

constitutes a single ‘‘loan’’ and a single method of 

counting loans. 

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 Bureau anticipates 

that the account volume criterion will 

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). Third, the degree of 

consumer impact increases directly 

when a servicer handles multiple 

accounts for a given consumer because 

the accounts are likely to represent 

loans held by different loan holders. In 

that situation, the servicer will be 

managing the consumer’s dealings with 

multiple other companies. In addition, 

different loan holders may impose 

different standards and requirements for 

how the servicer performs its tasks, 

including the task of applying the 

consumer’s payments to multiple 

accounts. The coordination needed can 

be complicated and represents an 

additional facet of servicing that 

account volume reflects. 

Some commenters asserted that 

servicers do not currently track account 

volume based on fee streams and 

expressed concern that it will be 

burdensome for companies to track this 

information. This concern is misplaced 

for at least two reasons. First, as noted 

above, the larger participant rule does 

not require entities to calculate whether 

they are larger participants. Second, 

student loan servicers should be able to 

determine relatively easily whether 

their account volume meets the 

threshold, if 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, a trade 

organization, and have reported the 

sizes of their servicing programs to 

SLSA annually on both those bases.67 A 

servicer’s account volume would not 

necessarily be the same, for any 

particular servicer, as the number of its 

loans or the number of its borrowers. 

But 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 will generally be at least as large 

as that person’s number of borrowers.68

Thus, any student loan servicer whose 

number of borrowers is above the 

threshold can expect that its account 

volume will also exceed the threshold. 

Presently, few if any entities with less 

than one million borrowers are likely to 

have account volumes anywhere close 

to the threshold.69 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 this number if the occasion 

arises to do so because servicers are 

presumably invoicing and expecting 

receipts on that basis. One servicer 

noted in its comment that such 

information is not typically aggregated 

or tracked across clients but 

acknowledged that servicers may track 

billable accounts for purposes of 

contract management and client 

invoicing. 

Several industry commenters claimed 

that number of loans or number of 

borrowers would be a superior measure. 

These commenters did not agree on 

which of these measures would be 

preferable, but they generally suggested 

that account volume as a criterion 

would treat otherwise similar servicing 

portfolios differently.70 The commenters 

noted that servicers are compensated 

based on different variables (e.g., perborrower, per-loan, or per-account) 

depending on the lender and stated that 

two organizations’ servicing portfolios 

that include the same number of 

borrowers and/or loans could, under the 

proposed definition, have a significantly 

different number of income streams 

depending on the method of 

compensation. Another commenter 

noted that using the Bureau’s definition 

of account volume could produce 

different results for servicers that are 

employed by multiple student loan 

holders or securitization trusts as 

opposed to those that service multiple 

loans held by the same holder. For 

example, while one servicer may be 

administering four loans for a single 

borrower and receiving one stream of 

fees because all those loans are owned 

by the same entity, another servicer may 

be receiving four streams of fees for the 

borrower because the loans are owned 

by four separate entities. 

The Bureau recognizes that two 

servicers whose portfolios contain the 

same number of borrowers or the same 

number of loans, according to their 

respective calculations, may have 

different numbers of accounts under the 

Bureau’s definition. But because the 

Bureau does not regard number of 

borrowers or number of loans as the sole 

or proper measure of market 

participation, these apparent 

discrepancies do not mean that number 

of accounts is an improper measure. The 

Bureau has sought to develop a 

definition that appropriately represents 

a firm’s participation in the market and 

overall impact on consumers and is 

sufficiently clear to apply when the 

Bureau assesses whether a firm is a 

larger participant in the market. 

While the number of loans and the 

number of borrowers for which an entity 

performs servicing are both relevant to 

the entity’s consumer impact and 

market participation, neither measure is 

superior to number of accounts. 

Although one commenter suggested that 

a servicer servicing four loans for four 

different holders should be treated the 

same as a servicer handling four loans 

for the same holder, the former portfolio 

will probably be substantially more 

complex than the latter and involve 

more consumer impact, as discussed 

above. The account volume criterion 

captures this additional consumer 

impact. Meanwhile, the number of 

borrowers does not measure the extent 

of a particular borrower’s interactions 

with the servicer because the extent of 

a servicer’s contact with a borrower will 

depend on various factors including the 

number of accounts or loans the 

borrower has and whether the borrower 

is the principal obligor on the account. 

In addition, each of the alternative 

criteria would produce discrepancies 

between servicing portfolios. Different 

servicers may define and count ‘‘loans’’ 

in various ways, depending on the type 

of loans serviced and the details of the 

servicing contracts.71 Thus, two 

portfolios that are the same in many 

important respects might nonetheless 

have different numbers of loans. With 

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72For example, it is unclear how many unique 

borrowers a family would represent if the parents 

were co-makers on loans for education expenses for 

each of their two children, endorsed additional 

loans taken out by one of their two children for the 

child’s education expenses, and also each had loans 

taken out on their own for their own education. One 

trade association also noted that with respect to 

Federal Parent PLUS loans and some private 

education loans, the student may not be considered 

the borrower but would instead be considered a 

loan beneficiary, and suggested that only the loan 

obligor be included in any accounting of the 

number of borrowers in that circumstance. Because 

the Final Rule does not use number of borrowers 

as the criterion, the Bureau need not address this 

suggestion. 

73One commenter also asserted that the Proposed 

Rule appeared to mix two different concepts, as 

‘‘per-account’’ is generally not the same as ‘‘perborrower.’’ This commenter appears to have 

misunderstood the Bureau’s proposal because the 

Proposed Rule, like the Final Rule the Bureau is 

now adopting, does not equate account with 

borrower. 

74The Bureau reached this estimate as follows: 

For Federally-owned loans (including Federal 

Direct loans and Federally-owned FFELP loans), 

each borrower corresponds to exactly one account 

(that is one stream of fees), because the Department 

of Education compensates servicers based on their 

number of borrowers, rather than on the number of 

loans they service. 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, the seven largest firms have 

reported that they service 30 million borrowers of 

Federally-owned loans. Among outstanding student 

loans that are not Federally-owned (commerciallyheld FFELP loans and all private student loans), the 

Bureau believes that the number of accounts is 

unlikely to exceed the number of loans reported by 

the various servicers, as the Bureau is unaware of 

any fee stream that corresponds to a unit smaller 

than a single loan. The seven largest firms reported 

to SLSA that they service 45 million non-Federallyowned loans. (The Bureau recognizes that because 

SLSA has not established standards, servicers have 

adopted different methods for counting private 

loans and their borrowers, but the Bureau does not 

expect the variations to be substantial for purposes 

of this estimate.) Thus, the Bureau believes an 

upper-bound estimate of the number of accounts 

serviced by the seven largest market participants is 

75 million—the sum of the number of accounts 

corresponding to 30 million borrowers of Federallyowned student loans (at one account per borrower) 

and the number of accounts corresponding to 45 

million loans that are not Federally-owned (at one 

account per loan). The seven largest firms report 

that they are servicing the loans of a total of 49 

million borrowers. Therefore, the Bureau’s upperbound estimate for the number of accounts serviced 

by these seven firms, 75 million, is roughly 50 

percent greater than the aggregate number of 

borrowers reported by these seven firms, 49 million. 

Using a similar means of estimating, the Bureau has 

calculated that an upper-bound estimate of the 

number of accounts serviced market-wide is about 

50 percent more than the estimated number of 

borrowers in the market. 

respect to number of borrowers, two 

trade associations proposed in their 

comments that loans that involve more 

than one borrower (co-makers) or that 

are co-signed or endorsed should be 

counted for a single borrower so as not 

to ‘‘artificially’’ inflate the number of 

borrowers attributable to a servicer. 

These comments did not address how 

the number of borrowers should be 

counted when individuals are 

responsible for multiple loans that 

involve a co-maker, co-signer, or 

endorser.72 Whatever result the Bureau 

might specify for these various 

alternative criteria would produce 

different borrower counts for servicing 

portfolios that are arguably similar.73

As commenters noted, number of 

accounts does not correlate perfectly 

with number of borrowers or number of 

loans. But, compared to these other two 

measures, number of accounts seems the 

most appropriate basis on which to 

measure overall market participation. Of 

the three measures, account volume 

better reflects consumer interactions, 

servicer compensation, and the number 

of holders for the loans a servicer is 

handling with respect to each borrower. 

The Bureau does not have data 

directly on servicers’ account volumes, 

as defined in this Final Rule, but 

believes that the numbers of borrowers 

that servicers reported to SLSA in 2012 

is an adequate proxy to enable the 

Bureau to analyze the market and select 

a threshold for larger-participant status. 

For purposes of its analysis, the Bureau 

noted in proposing the rule that, for 

most firms, the number of accounts may 

not differ substantially from the number 

of borrowers—the Bureau estimated that 

a firm’s number of accounts generally is 

no more than about 50 percent greater 

than the number of borrowers it 

reports.74

Two commenters expressed concern 

about this part of the Bureau’s analysis. 

One servicer asserted that the ‘‘CFPB 

assumes that the ratio between loans 

and borrowers will be approximately 

two loans per borrower.’’ The servicer 

also noted that it had calculated its own 

overall average loan-to-borrower ratio as 

3.54 as of December 2012. It reported 

that its loan-to-borrower ratio varies 

among its portfolios based on portfolio 

characteristics: It estimated that it 

services 2.35 loans for each borrower of 

FFELP and private student loans, and 

4.17 loans for each borrower of loans 

that it services as a TIVAS on behalf of 

the Department of Education. This 

commenter appears to misunderstand 

the Bureau’s analysis. The Bureau did 

not assume a 2-to-1 ratio or any other 

ratio for loans-to-borrowers, but has 

instead estimated that the typical 

account-to-borrower ratio is unlikely to 

exceed 1.5 based on market-wide 

information. The numbers provided by 

the commenter are not to the contrary 

because they do not reflect account-toborrower ratios but instead are estimates 

of the servicer’s loan-to-borrower ratios. 

The commenter’s account-to-borrower 

ratio would be substantially lower than 

the ratio it provided because each 

borrower corresponds to only one 

account for Federal Direct loans and 

Federally-owned FFELP loans and a 

servicer generally would not have more 

accounts than loans for other types of 

loans. 

Another commenter noted that the 

ratio of number of accounts to number 

of borrowers could change in the future, 

depending on the state of the economy 

and changes to student loan policy at 

the Federal level. This commenter 

indicated that borrowers may go back to 

school or otherwise need to take out 

more loans in the coming years. The 

Bureau’s analysis is not intended to 

estimate what the account-to-borrower 

ratio will be in the future. Instead, the 

ratio is merely to assist in translating the 

numbers of borrower that servicers 

reported in the 2012 SLSA volume 

survey into information about servicers’ 

current account volume. In light of this 

purpose, the Bureau concludes that the 

2012 SLSA volume survey is an 

adequate proxy to enable the Bureau to 

conduct a sufficient analysis of the 

market so that it can select a threshold 

for larger-participant status. 

Threshold. The Bureau has broad 

discretion in setting the threshold above 

which an entity would qualify as a 

larger participant of the market for 

student loan servicing. The Bureau 

proposed that 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 received a number 

of comments on the proposed threshold. 

In light of the comments, and for the 

reasons stated below, the Bureau adopts 

the proposed threshold in the Final 

Rule. 

As discussed above, the Bureau does 

not have precise data on market 

participants’ account volumes 

calculated in accordance with the Final 

Rule’s definition. However, the number 

of a servicer’s accounts, under the Final 

Rule’s definition of ‘‘account volume,’’ 

is generally no 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 

(if any) that a servicer has reported to 

SLSA. These two figures, therefore, 

provide estimated outer bounds for a 

given servicer’s number of accounts 

with a sufficient degree of precision to 

enable the Bureau’s threshold-setting 

analysis. According to the 2012 SLSA 

volume survey, seven nonbank entities 

each serviced the loans of more than 

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75By contrast, the median number of borrowers 

with loans being serviced by a given entity is 

approximately 250,000. 2012 SLSA Servicing 

Volume Survey, augmented by CFPB estimates. 

76 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. This estimated range 

is slightly different from the Bureau’s estimate 

when it issued the Proposed Rule because the 

Bureau has now factored in guaranty agencies that 

provide default aversion services, as noted above. 

77As 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. 

78 34 CFR 682.404. 

79 34 CFR 682.404(k). This fee cannot be paid 

more than once on any loan. Id. 

80 In 2011, 33 guaranty agencies reported a total 

of $111 million in net default aversion fee revenue, 

which, given the one percent fee, corresponds to 

$11.1 billion in outstanding principal and interest 

of FFELP loans. Fed. Student Aid, FY 2011 

Summary of Guaranty Agency Financial Reports, 

available at http://www.fp.ed.gov/attachments/

publications/

EDForms2000DataFY11AnnualReport.pdf 

(providing the total default aversion fees collected 

by guaranty agencies in FY 2011). The Bureau has 

estimated the average FFELP balance at $20,600 per 

borrower based on the total outstanding balance 

and number of borrowers reported by Federal 

Student Aid in the repayment, deferment, 

forbearance, and other categories as of September 

30, 2012. Fed. Student Aid, Direct Loan Portfolio 

by Loan Status, available at http://

studentaid.ed.gov/sites/default/files/fsawg/

datacenter/library/PortfoliobyLoanStatus.xls. Using 

this data, the Bureau has estimated that the 33 

guaranty agencies together provided default 

aversion services on the loans of less than one 

million borrowers. Because the highest net default 

aversion fee revenue reported by a single guaranty 

agency to the Department of Education was 

$33,725,085, the Bureau concludes based on the 

same analysis that no individual guaranty agency 

currently has even close to one million fee streams 

from default aversion services on its own. 

81 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 

82 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 

83 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 84 20 U.S.C. 1087f(a)(4); HCERA/SAFRA—NotFor-Profit (NFP) Servicer Program documentation, 

as of Sept. 25, 2013 (showing firms that contract 

servicing rights to other entities), available at 

https://www.fbo.gov/spg/ED/FSA/CA/NFP-RFP2010/listing.html. 85The trade association advocating a higher 

threshold also suggested that only the TIVAS 

should be treated as larger participants because the 

TIVAS are now receiving all new account 

allocations under the Federal Direct Loan Program. 

The Bureau recognizes that account allocations may 

implicate which entities have sufficient volume to 

meet the larger participant threshold of one million 

accounts in the future, but does not view this as a 

reason to adjust the threshold. In any event, entities 

that are not TIVAS may well obtain additional 

volume through other sources, such as subservicing 

contracts. 

86 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 

generally to be no less than its number of borrowers 

and no more than about 50 percent greater. 

one million borrowers.75 Those seven 

nonbanks, which will presumably be 

larger participants under the Final Rule, 

are responsible for between 

approximately 71 and 93 percent of 

activity in the nonbank student loan 

servicing market.76 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.77

Although guaranty agencies engage in 

student loan servicing when they 

provide default aversion services in the 

manner provided by regulation,78 the 

Bureau does not believe that the 

inclusion of this default aversion 

activity in the definition of ‘‘student 

loan servicing’’ changes the number of 

entities that currently meet the 

definition of larger participants under 

the Final Rule. A guaranty agency is 

compensated for performing default 

aversion by receiving a fee of one 

percent of the total unpaid principal 

and accrued interest owed by the 

borrower as of the date an institution 

asked the agency to engage in default 

aversion.79 In light of the net default 

aversion income reported by each 

guaranty agency to the Department of 

Education and available data about 

FFELP balances, the Bureau does not 

believe that any guaranty agency 

performs this function for more than 

one million accounts.80

The Bureau believes that the account 

volume threshold of one million is 

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 the 

Bureau believes will likely be larger 

participants collectively service the 

loans of approximately 49 million 

borrowers.81 At the same time, this 

threshold will subject to the Bureau’s 

supervisory authority only entities that 

can reasonably be considered larger 

participants of the market. 

One industry commenter urged the 

Bureau to increase the threshold to three 

million accounts. This would likely 

allow the Bureau to supervise only the 

five very largest participants in the 

market, which are the five Title IV 

Additional Servicers (TIVAS). The 

TIVAS represent between 

approximately 67 and 87 percent of 

activity in this market based on unpaid 

principal balance and number of 

borrowers.82 In support of this change, 

the commenter noted that the TIVAS 

have a much higher volume than the 

next largest entities in the market. Other 

commenters including consumer groups 

opposed this change, noting that it 

would fail to include in the Bureau’s 

supervisory program two very large loan 

servicers responsible for billions of 

dollars in education loans and would 

leave only five student loan servicers 

subject to the Bureau’s supervision 

under the larger participant rule. 

The Bureau agrees that even if these 

two entities are smaller than the TIVAS, 

they should nevertheless be considered 

‘‘larger participants’’ of the market at 

present. Servicers with responsibility 

for over one million accounts have a 

substantial impact on consumers and 

the market. In fact, each of the two 

servicers that might be removed from 

the definition of ‘‘larger participant’’ if 

the threshold were increased from 1 

million to 3 million accounts currently 

services approximately 1.5 million 

borrowers.83 Additionally, these two 

servicers are responsible for the direct 

servicing of a large number of loans 

assigned to various smaller Stateaffiliated agencies or not-for-profits by 

the Health Care and Education 

Reconciliation Act of 2010.84 In light of 

these relationships, the Bureau believes 

that supervising servicers that handle 

between one and three million accounts 

is an efficient way to monitor the 

servicing of loans assigned by statute to 

smaller servicers. The Bureau therefore 

declines to raise the threshold.85

Several consumer groups suggested 

lowering the threshold to 200,000 

accounts. One of these commenters 

stated that a lower threshold would give 

the Bureau more flexibility because it 

would allow the Bureau to supervise 

between 15 and 18 entities, representing 

between approximately 74 and 99 

percent of activity in this market.86

Some asserted that a servicer with 

200,000 accounts would need a similar 

large-scale investment in technology, 

internal controls, and human resources 

as a servicer with one million accounts; 

given that level of investment, the 

commenters said, supervision would 

not be burdensome. Consumer groups 

also stated that a lower threshold would 

increase the Bureau’s ability to examine 

niche servicers that specialize in 

servicing important subsectors of 

borrowers. 

The Bureau notes that the additional 

entities that would be included using 

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87 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 88 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates; HCERA/SAFRA— 

Not-For-Profit (NFP) Servicer Program 

documentation, as of Sept. 25, 2013 (showing firms 

that contract servicing rights to other entities), 

available at https://www.fbo.gov/spg/ED/FSA/CA/

NFP-RFP-2010/listing.html. 89Two consumer groups suggested that the Final 

Rule should automatically cover servicers that the 

Department of Education is required by statute to 

contract with for loan servicing. The Health Care 

and Education Reconciliation Act of 2010 directed 

the Secretary of Education to allocate up to 100,000 

servicing accounts to each eligible not-for-profit 

student loan servicer in existence as of July 1, 2009, 

subject to certain limitations. 20 U.S.C. 1087f(a)(4). 

A consumer group commenter stated that when 

Congress mandates that a servicing contract be 

given to a student loan servicer, that servicer should 

be subject to Bureau oversight to manage taxpayer 

money. As noted above, the Bureau believes that 

many of these entities currently have total account 

volumes that fall between 200,000 and 1 million. 

For the same reasons that the Bureau has chosen 

not to lower the threshold to 200,000 accounts, the 

Bureau has decided not to adjust the Proposed 

Rule’s definitions in a way that would render these 

not-for-profit entities larger participants of the 

student loan servicing market. 

90 78 FR 37409, 37412 (June 20, 2013); 13 CFR 

121.201 (NAICS code 522390). For the purposes of 

its analysis under 12 U.S.C. 5512(b)(2)(A), 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 Census 

Bureau, 2012 NAICS Definition, 522390 Other 

Activities Related to Credit Intermediation, 

available at http://www.census.gov/cgi-bin/sssd/ 

naics/naicsrch?code=522390&search=2012 NAICS 

Search. The Bureau solicited comment on whether 

this or any other NAICS code is most appropriate 

for this market and did not receive any comments. 

The Bureau is aware that a nonbank larger 

participant of the student loan servicing market 

might identify itself as falling within a NAICS code 

other than the one that includes loan servicing. For 

example, some entities may report under NAICS 

code 522291 for consumer lending, which is the 

index entry corresponding to student lending. 

91See 78 FR 37409, 37412 (June 20, 2013); 13 CFR 

121.201 (NAICS code 522291). 

92 13 CFR 121.102(a); Size Standards Div. Office 

of Gov’t Contracting & Bus. Dev., ‘‘SBA Size 

Standards Methodology’’ (Apr. 2009), available at 

http://www.sba.gov/sites/default/files/size_

standards_methodology.pdf. 

93 77 FR 42874, 42876, 42890 (July 20, 2012) 

(Consumer Reporting Rule). The ‘‘annual receipts’’ 

criteria used in the Consumer Reporting Rule and 

the Consumer Debt Collection Rule also differ in 

some respects from the SBA’s definition of ‘‘annual 

receipts.’’ For example, the SBA counts all of a 

person’s receipts in calculating annual receipts, 

while the Consumer Reporting and Consumer Debt 

Collection Rules count only receipts resulting from 

a market-related activity. Id. 

94 12 U.S.C. 5514(a)(1)(B), (a)(2). 95As noted above, 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. 

this lower threshold are only a fraction 

of the size of even the smallest entities 

that exceed the one million account 

threshold.87 Additionally, many of the 

entities that would be captured between 

200,000 and one million accounts are 

State-affiliated agencies or not-for-profit 

entities that place their loans with two 

servicers that will likely be larger 

participants.88 Because these two 

servicers are above the one million 

account threshold, the Bureau should be 

able to evaluate these common servicing 

platforms and identify risks they pose to 

consumers. To the extent these smaller 

entities raise additional concerns, the 

Bureau has other tools that it could use 

to address them, including (1) 

establishing supervision authority over 

a particular company based on a 

reasonable-cause determination 

pursuant to the Bureau’s risk 

determination rule, 12 CFR part 1091, 

pursuant to 12 U.S.C. 5514(a)(1)(C); (2) 

enforcement investigations where 

warranted; (3) coordination with State 

regulators, State attorneys general, and 

the Federal Trade Commission; and (4) 

research and monitoring. In light of the 

availability of these alternative tools, the 

Bureau declines to lower the threshold 

for larger-participant status.89

One commenter noted that the one 

million account threshold would not 

cover any servicers with annual receipts 

below $30 million and suggested the 

threshold should be lowered to align 

with the size standard for ‘‘small 

businesses’’ in this market established 

by the U.S. Small Business 

Administration (SBA). At the time the 

comment was filed, the threshold was 

$7 million in annual receipts for entities 

that fall in the NAICS code for ‘‘other 

activities related to credit 

intermediation,’’ the category that 

includes ‘‘loan servicing.’’ After the 

comment period closed, the SBA raised 

its size standard for this NAICS code to 

$19 million, effective July 22, 2013.90

The SBA also increased the size 

standard for a related category— 

‘‘consumer lending’’ (which includes 

‘‘student lending’’)—to $35.5 million.91

In setting its size standards, the SBA 

considers a variety of factors—such as 

eligibility for Federal small-business 

assistance and Federal contracting 

programs; startup costs, entry barriers, 

and industry competition; and 

technological change.92 These factors 

differ from the concerns articulated in 

this preamble that motivate the Bureau’s 

definition of ‘‘larger participants’’ in a 

particular market such as student loan 

servicing. Because the SBA’s measure 

and the Bureau’s threshold are used for 

different purposes and targeted at 

different statutory objectives, the Bureau 

does not believe it is necessary as a 

general matter to adjust its threshold for 

a given market to conform to a 

particular SBA threshold. 

The same commenter also suggested 

that a lower threshold than what the 

Bureau proposed is in order for this 

market because the threshold for larger 

participant status under the Consumer 

Reporting Rule is only $7 million in 

annual receipts. As stated in the 

Proposed Rule, the Bureau considers 

each market separately and may adopt 

different criteria and thresholds for each 

market. The Bureau selected annual 

receipts in the consumer reporting 

context for ease of application and made 

it clear that it had not determined that 

annual receipts, or a threshold of $7 

million in annual receipts, would be 

appropriate for any other market that 

might be the subject of a future larger 

participant rulemaking.93 This tailored 

approach is necessary because the 

markets that the Bureau has considered 

to date (consumer reporting, consumer 

debt collection, and student loan 

servicing) differ in many ways: Firms in 

the three markets perform entirely 

different functions and interact with 

consumers in different ways, the market 

structures are different, the substantive 

Federal consumer financial laws 

principally relevant to the three markets 

differ substantially, and the manner in 

which annual receipts connect to 

consumer interactions is different in 

each of the markets. In light of these and 

other significant differences, the Bureau 

continues to believe that the criterion 

and threshold used in the Final Rule 

would fit the student loan servicing 

market better than would the criteria 

and threshold used in the Consumer 

Reporting Rule. 

A number of individual commenters 

suggested that the Bureau supervise all 

student loan servicers or particular 

subcategories regardless of size, such as 

all Federal student loan servicers. Some 

of these commenters asserted that small 

servicers are as likely to engage in 

fraudulent practices as larger servicers 

are. The Bureau does not believe that 

including a category of servicers 

regardless of size would be consistent 

with 12 U.S.C. 5514(a)(1)(B), which 

authorizes the Bureau to define ‘‘larger 

participants’’ of other markets for 

consumer financial products or 

services.94 The Bureau therefore 

declines to make the changes suggested 

by these comments.95

Finally, one commenter urged the 

Bureau to read ‘‘larger participant’’ more 

broadly in light of the consumer 

protection purposes of the Dodd-Frank 

Act. In assessing whether an entity is a 

‘‘larger participant,’’ this commenter 

suggested that the Bureau consider 

whether the entity mainly focuses on 

student loan servicing rather than 

assessing the volume of its accounts. 

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73398 Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations 

96 12 U.S.C. 5512(b)(2)(A). 

97Specifically, 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 are unclear. Nevertheless, to 

inform this rulemaking more fully, the Bureau 

performed the analysis and consultations described 

in those provisions of the Dodd-Frank Act. 

98The 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. 

99 Dep’t of Educ., Federal Student Aid Annual 

Report 2 (2012), available at http://www2.ed.gov/

about/reports/annual/2012report/fsa-report.pdf. 

100Pursuant to 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 may result from the 

Final Rule generally applies to service providers to 

larger participants. 

101National Postsecondary Student Aid Study 

2008 (hereinafter NPSAS 2008). 

Under such an approach, a monoline 

company engaging in a certain volume 

of student loan servicing might be a 

larger participant even though a 

multiline company engaging in 

substantially more student loan 

servicing would not be a larger 

participant. The Bureau has decided not 

to adopt this approach because the 

Bureau does not believe that a 

company’s status as a larger participant 

of the student loan servicing market 

should change based on the relative 

magnitude of other lines of business in 

which it may engage. For the reasons 

stated above, the Bureau adopts the 

proposed threshold of one million 

accounts for the student loan servicing 

market. 

VI. Section 1022(b)(2)(A) of the DoddFrank Act 96

A. Overview 

The Bureau has considered potential 

benefits, costs, and impacts of the Final 

Rule.97 The Proposed Rule set forth a 

preliminary analysis of these effects, 

and the Bureau requested and received 

comments on the topic. In addition, the 

Bureau has consulted with or offered to 

consult with the 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 Final Rule defines a category of 

‘‘larger participant[s] of . . . market[s] 

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 

category includes ‘‘larger participants’’ 

of a market for ‘‘student loan servicing’’ 

that the Final Rule describes. Whether 

a firm is a larger participant in this 

market is measured on the basis of 

account volume. If a nonbank covered 

person’s account volume (measured, per 

the definition, as of December 31 in the 

preceding calendar year) exceeds one 

million, then it is a larger participant. If 

a firm is deemed to be a larger 

participant in a given year, then it will 

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 Final Rule measured from a 

baseline that includes the Bureau’s 

existing rules defining larger 

participants of certain markets.98 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.99 With the Final Rule in 

effect, the Bureau will 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 Final 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 

rates of compliance or noncompliance 

with Federal consumer financial law 

and about the range of, and costs of, 

compliance mechanisms used by market 

participants. 

In light of these data limitations, this 

analysis generally provides a qualitative 

discussion of the benefits, costs, and 

impacts of the Final 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 Final Rule authorizes 

the Bureau’s supervision in the student 

loan servicing market. Larger 

participants of the market may respond 

to the possibility of supervision by 

changing their systems and conduct, 

and those changes may result in costs, 

benefits, or other impacts. Second, 

when the Bureau undertakes 

supervisory activity at specific student 

loan servicers, those servicers will incur 

costs from responding to supervisory 

activity, and the results of these 

individual supervisory activities also 

may produce benefits and costs.100

Third, the Bureau analyzes the costs 

that may be associated with entities’ 

efforts to assess whether they qualify as 

larger participants under the rule. 

In considering the costs and benefits 

of the Final Rule, it is important to note 

that Federal student loans and private 

student loans differ 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.101

1. Benefits and Costs of Responses to the 

Possibility of Supervision 

The Final Rule will subject larger 

participants of the student loan 

servicing market to the possibility of 

Bureau supervision. That the Bureau 

will be authorized to undertake 

supervisory activities with respect to a 

nonbank covered person that qualifies 

as a larger participant does not 

necessarily mean the Bureau will in fact 

undertake such activities regarding that 

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102Another approach to considering the benefits, 

costs, and impacts of the Final 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. 

103 Dep’t of Educ., Federal Student Aid Annual 

Report 2 (2012), available at http://www2.ed.gov/

about/reports/annual/2012report/fsa-report.pdf. 

104NPSAS 2008. 

105See 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. 

106 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 part 1002 (Regulation B); 12 

U.S.C. 5301 et seq. (Dodd-Frank Act). 

107Among 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). 

108 15 U.S.C. 1693e. 

109Recent 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 

Continued 

covered person in the near future. 

Rather, supervision of any particular 

larger participant as a result of this 

rulemaking is probabilistic in nature. 

For example, the Bureau will examine 

certain larger participants on a periodic 

or occasional basis. The Bureau’s 

decisions about supervision will 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 

believes it qualifies as a larger 

participant will know that it may be 

supervised and may gauge, given its 

circumstances, the likelihood that the 

Bureau will initiate an examination or 

other supervisory activity. 

The prospect of potential supervisory 

activity may create an incentive for 

larger participants to increase their 

compliance with Federal consumer 

financial law. They may anticipate that 

by doing so (and thereby decreasing 

risks to consumers), they can decrease 

the likelihood of their actually being 

subjected to supervision as the Bureau 

evaluates the factors outlined above. In 

addition, an actual examination will 

likely reveal any past or present 

noncompliance, which the Bureau can 

seek to correct through supervisory 

activity or, in some cases, enforcement 

action. Larger participants may therefore 

judge that the prospect of supervision 

increases the potential consequences of 

noncompliance with Federal consumer 

financial law, and they may seek to 

decrease that risk by curing or 

mitigating any noncompliance. 

The Bureau believes it is likely that 

market participants will increase 

compliance in response to the Bureau’s 

supervisory activities authorized by the 

Final Rule. However, because the Final 

Rule itself does 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 increase their 

compliance in response to the Final 

Rule, that response will result in both 

benefits and costs.102

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.103 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 results from the Final 

Rule may 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 will 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.104 Increasing the rate of 

compliance with such laws will 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 

will likely, at the outset, qualify as 

larger participants under the Final 

Rule’s threshold currently service the 

student loans of approximately 49 

million borrowers.105 A number of 

Federal consumer financial 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.106 Increasing the 

rate of compliance with such laws will 

benefit consumers by providing more of 

the protections mandated by those 

laws.107

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.108 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.109

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73400 Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations 

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. 110 15 U.S.C. 1681s–2(a)(1)(A). 111 12 CFR 1022.42. 112 15 U.S.C. 1681i(a)(1), 1681s–2(a)(8); 12 CFR 

1022.43. 113 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 4 (2012), available at 

http://www.consumerfinance.gov/reports/keydimensions-and-processes-in-the-u-s-creditreporting-system/. 

114As 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 Fed. 

Reserve Bank of N.Y., Quarterly Report on 

Household Debt and Credit 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). 

115 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 Fed. 

Res. Bull. 297, 314–15 (estimating fraction of 

individuals for whom inaccuracies in credit reports 

might affect credit terms); see also id. at 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. 

116 12 U.S.C. 5531. 

117The 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. 

118See CFPB Supervision and Examination 

Manual (Oct. 31, 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. 

119The 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 

SBA’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-TitleIV09/listing.html; see also Dep’t of Educ., 2012 FSA 

Conference Session 14, Federal Loan Servicer Panel 

Discussion 11 (Nov. 2012). For private student 

loans, servicing contracts are negotiated between 

loan holders or guarantors and master servicers, and 

between master servicers and subservicers. 

120See 12 U.S.C. 5515; 12 U.S.C. 5516. 

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.110 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.111 FCRA and 

Regulation V also give consumers the 

ability to dispute information furnished 

to consumer reporting agencies by 

submitting disputes to the consumer 

reporting agencies or directly to 

furnishers.112 A student loan servicer 

receiving a dispute must generally 

conduct a reasonable investigation.113

Increased compliance with these FCRA 

requirements will 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.114 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.115

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).116 Conduct 

that does not violate an express 

prohibition of another Federal consumer 

financial law may nonetheless 

constitute a UDAAP.117 Among the 

areas that the Bureau will 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 

aversion. 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.118 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. 

b. Costs of Increased Compliance 

On the other hand, increasing 

compliance involves costs. In the first 

instance, those costs will 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 will 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.119

Whether and to what extent such an 

increase occurred will depend on 

competitive conditions in the student 

loan servicing market. For example, 

larger participants of 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,120 to the extent the Final Rule 

results in an increase in the costs faced 

by the roughly seven larger participants, 

that increase will 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 

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121See 34 CFR 682.404(k) (setting the default 

aversion fee for guaranty agencies); Title IV 

Redacted Contract Awards, available at https://

www.fbo.gov/spg/ED/FSA/CA/FSA-TitleIV-09/

listing.html. 122 Dep’t of Educ., Student Loans Overview: 

Fiscal Year 2013 Budget Request, at R–28, available 

at http://www2.ed.gov/about/overview/budget/

budget13/justifications/r-loansoverview.pdf. 

123 20 U.S.C. 1070 et seq. 

124Further 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. 

servicing their portfolios of student 

loans in-house. 

Whether and to what extent such an 

increase might occur will 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 

or in the case of guaranty agencies by 

regulation.121 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.’’ 122 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 1965.123 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 Final 

Rule 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 will 

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 

also may 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 also may benefit student 

loan servicers under supervision by 

detecting compliance problems early. 

When an entity’s 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 that 

have been in place for long periods of 

time can be expected to be relatively 

difficult because they may be severe 

enough to represent a serious failing of 

an entity’s systems. Supervision may 

detect flaws at a point when correcting 

them would be relatively inexpensive. 

Catching problems early can, in some 

situations, forestall costly litigation. To 

the extent early correction limits the 

amount of consumer harm caused by a 

violation, it can help limit the cost of 

redress. In short, supervision might 

benefit student loan servicers under 

supervision by, in the aggregate, 

reducing the need for other more 

expensive activities to achieve 

compliance.124

b. Costs of Supervisory Activities 

The potential costs of actual 

supervisory activities arise in two 

categories. The first involves 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 are 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 is 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 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 

determine the scope of the on-site exam. 

While on-site, examiners spend some 

time in further conversation with 

management about the entity’s policies, 

processes, and procedures. The 

examiners 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 may 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, 

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125Mortgage 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 can involve that security 

interest. The parts of the Bureau’s examination 

manual 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. 

126This estimate was derived prior to issuance of 

the Proposed Rule using 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 counted its mortgage 

servicing examinations for which the on-site 

portion had been completed. Additionally, the 

Bureau counted only the on-site portion of an 

examination, which included 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 

did not count time spent scoping an examination 

before the on-site portion of the examination or 

summarizing findings or preparing reports of 

examination afterwards. 

127Bureau 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 

66.6 percent of the total cost of compensation. See 

BLS, Employer Costs for Employee Compensation 

Database, Series ID CMU2025220000000D, 

available at http://data.bls.gov/timeseries/

CMU2025220000000D?data_tool=XGtable 

(providing wage and salary percent of total 

compensation in the credit intermediation and 

related activities private industry for Q4 2011). 

Dividing the hourly wage by 66.6 percent yields a 

total mean hourly cost (including total costs, such 

as salary, benefits, and taxes) rounded to the nearest 

dollar of $50 per hour. 

128All figures assume 40 hours of work per week. 

129See, e.g., 12 U.S.C. 5531 (prohibiting unfair, 

deceptive, or abusive acts or practices). 

130See, e.g., Dep’t of Educ., Office of Inspector 

Gen., Lender Servicer Financial Statement Audit 

and Compliance Attestation Guide, available at 

http://www2.ed.gov/about/offices/list/oig/nonfed/

lenderservicerauditguidejanuary2011.pdf 

(establishing audit standards for certain servicers of 

FFELP loans). 

both before they arrive and during their 

time on-site. 

The primary cost an entity will 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 will 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 will conduct 

under the Final Rule.125 Therefore, the 

Bureau can 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.126

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 could be expected to devote the 

equivalent of one full-time employee 

during that time and for two weeks 

beforehand to prepare materials for the 

examination. The typical cost of an 

employee involved in responding to 

supervision can be expected to be 

roughly $50 per hour.127 Twelve weeks 

of such an employee’s time would cost 

approximately $24,000.128

Three commenters contended that the 

Bureau underestimated the costs of 

supervision and stated that the Bureau 

should have used a different basis for its 

estimate. In particular, two of the 

commenters stated that the Bureau 

should have based its estimate of costs 

on, among other things, audits of 

servicers required by the Department of 

Education. In the commenters’ view, 

this would have resulted in a 

substantially higher estimate. The 

Bureau believes the analogue it uses is 

a better analogue than those proposed 

by the commenters because it more 

accurately reflects the sort of 

examination to which student loan 

servicers will be subject. Bureau 

examinations, as detailed in the 

‘‘Overview’’ section of the preamble to 

this rule, test for compliance with 

Federal consumer financial protection 

laws. Student loan servicing and 

mortgage loan servicing examinations 

will involve some of the same Federal 

consumer financial protection laws, and 

the general process and costs will be 

relatively similar.129 On the other hand, 

audits required by the Federal loan 

holder, the Department of Education, or 

FFELP loan holders, include preparing 

and filing detailed financial statements 

regarding matters other than Federal 

consumer financial protection law.130

The Bureau does not believe that the 

burden of accommodating an audit 

regarding matters other than compliance 

with Federal consumer financial 

protection law is more analogous to the 

costs imposed by this rule than 

examinations of similar entities for 

compliance with similar Federal 

consumer financial protection law. One 

commenter also urged the Bureau to 

recognize the cumulative burden of 

Federal reviews. However, the 

commenter did not identify any respect 

in which the existence of Department of 

Education audits would make Bureau 

supervision more burdensome. 

One commenter stated that the 

Bureau’s cost estimate should be 

increased because additional employee 

time will be required. That more than 

one employee might be involved in an 

examination does not, in itself, suggest 

the Bureau’s estimate was inaccurate. In 

estimating that an examination might 

require a full-time compliance officer 

for 12 weeks and using the mean hourly 

wage for compliance officers, the 

Bureau did not mean to suggest that 

only one mid-level person would be 

involved in an examination. Instead, the 

Bureau recognizes that both junior and 

high-level staff may participate on a 

part-time basis and that these staff may 

be drawn from different offices within 

the entity. The Bureau intended its 

original estimate to represent the 

aggregate amount of labor resources a 

company might dedicate to responding 

to supervisory activity. The Bureau’s 

estimate was based on the Bureau’s 

experience in mortgage servicing 

examinations. As discussed above, the 

Bureau continues to believe these 

examinations are an appropriate 

analogue on which to base its estimate. 

The commenter specifically suggested 

that the Bureau’s cost estimate was too 

low because it did not sufficiently 

account for the cost of attorneys, which 

the commenter asserted will likely be 

involved in examinations. The Bureau 

has not suggested that counsel is 

required during an examination. 

However, to provide further information 

about potential costs of the rule, the 

Bureau has additionally estimated the 

cost of an examination using the 

assumption that the equivalent of two 

full-time compliance officers 

participated for 12 weeks, and a lawyer 

participated in the examination for 

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131BLS, 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 lawyer in 

that sector is $72.03. Because salary and wages 

constitute 66.6% of total compensation, the total 

mean hourly cost for a lawyer is $108 per hour. 

132The 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 AA–15, 

available at http://www2.ed.gov/about/overview/

budget/budget13/justifications/aa-saadmin.pdf. 

The same source reports that not-for-profit 

servicers’ average unit cost is $1.76 per month per 

borrower. The Bureau assumes, for the estimate, 

that servicing private student loans generates at 

least as much revenue per month per borrower as 

servicing Federal loans, and that a loan is serviced 

for 12 months per year. Note that since the number 

of accounts is generally no less than the number of 

borrowers, this approach may underestimate 

revenues. 

133The percentage would be even lower if an 

entity received revenue from other sources. 

134The Bureau declines to predict at this time 

precisely how many examinations it would 

undertake at each student loan servicer. But for 

purposes of the following analysis, the Bureau uses 

one examination every two years. If 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 (the cost of one full-time compliance officer 

for twelve weeks, divided by two). This would 

account for at most 0.06 percent of the 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 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 receipts. Even 

if the entity instead used the equivalent of two fulltime compliance officers for twelve weeks and 100 

hours of attorney time, the expected annual labor 

cost of supervision, collectively, at these seven 

larger participants would be an estimated $206,000, 

which is 0.02 percent of their estimated total 

receipts. 

135One commenter recommended that the Bureau 

minimize the costs of supervision by coordinating 

with the Department of Education. In fact, in 

connection with its supervision of student loan 

servicers, pursuant to its statutory obligation, the 

Bureau will use, to the fullest extent possible, 

reports that have been provided to other Federal 

agencies and share information with the 

Department of Education regarding complaints. 12 

U.S.C. 5514(b)(4); 5535(c). 

136 2012 SLSA Servicing Volume Survey. 

137 Dep’t of Educ., National Student Loan Data 

System (NSLDS) for Students (2013), available at 

https://www.nslds.ed.gov. 

138See 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 

139For Federal Direct and Federally-owned 

FFELP loans, the concept of borrower and account 

are identical. 

approximately 10 percent of the firm’s 

overall activity during the course of the 

examination, roughly 100 hours.131

Under these assumptions, the total labor 

costs would be approximately $59,000. 

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.132

Thus, the labor costs associated with an 

examination, as estimated above, would 

be no greater than 0.12 percent of the 

receipts of such a firm using the 

Bureau’s original estimate or 0.29 

percent using the alternative estimate 

that incorporates the equivalent of two 

full-time compliance officers and 

attorney involvement.133 Note that $20.2 

million is an estimated lower bound on 

the receipts of a larger participant as 

defined by the Final Rule. The costs 

associated with an examination are 

therefore likely to be a much smaller 

percentage of receipts each year for a 

given larger participant. 

The overall costs of supervision in the 

student loan servicing market will 

depend on the frequency and extent of 

Bureau examinations. Neither the DoddFrank Act nor the Final Rule specifies 

a particular level or frequency of 

examinations.134 The frequency of 

examinations will 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. The 

Bureau therefore declines to predict, at 

this point, precisely how many 

examinations in the student loan 

servicing market it would undertake in 

a given year.135

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. 

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, 2011.136 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.137

To the extent that some student loan 

servicers do not already know their 

account volumes, such servicers might, 

in response to the Final 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) and 12 CFR part 1091, 

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 considered 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, 2012.138 Since the Bureau 

does not have specific data about the 

number of accounts, as defined in the 

Final 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.139 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 

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140HCERA/SAFRA—Not-For-Profit (NFP) 

Servicer Program documentation, as of Sept. 25, 

2013, available at https://www.fbo.gov/spg/ED/

FSA/CA/NFP-RFP-2010/listing.html. 

141 2012 SLSA Servicing Volume Survey, 

augmented by CFPB estimates. 

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.140

One possible alternative the Bureau 

considered was 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 nonbank 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. 

The Bureau also considered various 

other criteria for assessing largerparticipant 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 Final 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 

Final Rule 

1. Depository Institutions and Credit 

Unions With $10 Billion or Less in Total 

Assets, as Described in Dodd-Frank Act 

Section 1026 

The Final Rule does 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 Final 

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 Final 

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 


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142See 20 U.S.C. 1087e. 

143 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 Final Rule will 

apply. 

144 5 U.S.C. 601(3). The Bureau may establish an 

alternative definition after consultation with the 

SBA and an opportunity for public comment. 

145 5 U.S.C. 609. 

146A 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. 

147 13 CFR 121.201 (NAICS code 522390), as 

amended at 78 FR 37409 (June 20, 2013). Prior to 

this amendment (and at the time of the NPRM), the 

small business threshold was $7 million. 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 Census Bureau, 

2012 NAICS Definition, 522390 Other Activities 

Related to Credit Intermediation, available at http:// 

www.census.gov/cgi-bin/sssd/naics/

naicsrch?code=522390&search=2012 NAICS 

Search. The Bureau recognizes that there may be 

larger participants of the student loan servicing 

market that are primarily engaged in other market 

activities that fall under other NAICS codes. For 

example, an entity could have just over 1,000,000 

student loan servicing accounts while also engaging 

in other market activities such as those falling 

under code 522291 (student loan origination), code 

561440 (debt collection), or code 56149 (business 

support). The thresholds for these codes range from 

$14 million (NAICS code 56149) to $35.5 million 

(NAICS code 522291). A larger participant with 

$20.2 million in receipts from student loan 

servicing ($1.68 per month per account * 1,000,000 

accounts) that also has enough receipts from 

another market activity to make that activity its 

‘‘primary industry’’ is likely to have more than 

$35.5 million in total receipts, which is the highest 

relevant threshold. See 13 CFR 121.107 

(establishing that the SBA uses distribution of 

receipts, employees, and costs to determine an 

entity’s ‘‘primary industry’’). 

148 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. 

institution might have contractual or 

other relationships with particular 

servicers that could insulate it from 

some of the potential impacts of the 

Final 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 Final Rule. As 

noted above, qualifying students are 

entitled to Federal Direct loans in 

amounts and on terms specified by 

statute.142 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 

disproportionately harmed by student 

loan servicers’ failure to comply with 

Federal consumer financial law. The 

Bureau requested comments that 

provide information related to how 

student loan servicing affects rural 

consumers but did not receive any. 

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.143 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.144

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.145

The undersigned certified 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 was therefore not required. The 

Final Student Loan Servicing Rule 

adopts the Proposed Rule, with some 

modifications that do not lead to a 

different conclusion. Therefore, a final 

regulatory flexibility analysis is not 

required. 

The Final Rule defines a class of 

student loan servicers as larger 

participants of the student loan 

servicing market and thereby authorizes 

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 SBA’s criterion at the time of 

the Proposed Rule, a servicer was 

generally a small business only if its 

annual receipts were below $7 million. 

Thus, larger participants of the 

proposed student loan servicing market 

would generally not have been small 

businesses for purposes of the 

analysis.146 Using the SBA’s updated 

criterion of $19 million would not have 

altered the conclusion because a 

servicer at the Bureau’s threshold would 

have about $20.2 million in annual 

servicing revenue.147 Indeed, using the 

estimate above that a servicer earns 

$1.68 per month per account, the 

Bureau believes that at present none of 

the larger participants under the Final 

Rule have annual receipts below $30 

million.148 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 Final Rule will 

not have a significant impact on a 

substantial number of small entities. 

Additionally, and in any event, the 

Bureau believes that the Final Rule will 

not result in a ‘‘significant impact’’ on 

any small entities that could be affected. 

As previously noted, when and how 

often the Bureau will 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) will 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 

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73406 Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations 

149As discussed above, the Bureau has estimated 

that the cost of participating in an examination 

would be substantially below one percent of annual 

receipts for a firm near the threshold of one million 

in account volume. 

150Census Bureau, 2007 Economic Census, 

American FactFinder, Finance and Insurance: 

Subject Series—Estab. and Firm Size: Summary 

Statistics by Revenue Size of Firms for the United 

States, available at http://factfinder2.census.gov/

faces/tableservices/jsf/pages/

productview.xhtml?pid=ECN_2007_US_

52SSSZ4&prodType=table (NAICS code 522390). 

industries over which it has supervisory 

responsibility for consumer financial 

protection, when and how often a given 

student loan servicer will be supervised 

is uncertain. Moreover, when 

supervisory activity occurs, the costs 

that result from such activity are 

expected to be minimal in relation to 

the overall activities of a student loan 

servicer.149

Finally, a commenter contended that 

‘‘it is unclear whether the CFPB intends 

to flow down the requirements of the 

Proposed Rule to service providers of 

larger participants.’’ The same 

commenter also requested that, if the 

service providers are subject to 

supervision, the Bureau provide an RFA 

analysis of the impact of the Final Rule 

on service providers that are small 

businesses. Although the Final Rule 

does not address service providers, 12 

U.S.C. 5514(e) authorizes the Bureau to 

supervise service providers to larger 

participants. The Final Rule identifies 

those student loan servicers who are 

larger participants and are, therefore 

subject to Bureau supervision. Thus, 

pursuant to the Bureau’s statutory 

authority, in conjunction with the 

supervision of a larger participant 

encompassed by the Final Rule, the 

Bureau may also supervise any service 

providers to that larger participant. 

Nonetheless, the Final Rule does not 

address service providers, and effects on 

service providers therefore need not be 

discussed for purposes of this RFA 

analysis. Even if such effects were 

relevant, however, the Bureau 

concludes that, to the extent the Final 

Rule will result in the supervision of 

service provides to larger participants, 

this will not have a significant economic 

impact on a substantial number of small 

entities. First, the Bureau does not 

anticipate that the impact of supervisory 

activity on such service providers 

would have any greater economic 

impact than at the larger participants to 

which they were connected. Given the 

Bureau’s finite supervisory resources, 

and its discretion in exercising 

supervisory authority, the impact at a 

given service provider would probably 

be much less than at its associated larger 

participant. 

Second, supervision of service 

providers to larger participants of the 

student loan servicing market will not 

have an impact on a substantial number 

of small entities. The Bureau reaches 

this conclusion based on the number of 

small firms in the relevant NAICS 

codes. Many of these service providers 

would be considered to be in the 

industries with NAICS code 552390, 

‘‘Other activities related to credit 

intermediation.’’ According to the 2007 

Economic Census, more than 5,000 

small firms are encompassed by that 

code,150 and the number of those firms 

that are service providers to the seven 

student loan servicers who are likely to 

be larger participants will be only a 

small fraction of that number. 

Accordingly, the Bureau adheres to 

the certification, in the Proposed Rule, 

that the Final Rule will not have a 

significant economic impact on a 

substantial number of small entities. 

VIII. Paperwork Reduction Act 

The Bureau determined that the 

Proposed Rule would not impose any 

new recordkeeping, reporting, or 

disclosure requirements on covered 

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. The Bureau did not receive 

any comments regarding this 

conclusion, to which the Bureau 

adheres. The Bureau concludes that the 

Final Student Loan Servicing Rule, 

which adopts the Proposed Rule in 

relevant respects, also imposes no new 

information collection requirements 

subject to the Paperwork Reduction Act. 

List of Subjects in 12 CFR Part 1090 

Consumer protection, Credit. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Bureau amends 12 CFR 

part 1090, subpart B, 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). 

Subpart B—Markets 

■ 2. Add § 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 

a loan that is made, insured or 

guaranteed under Title IV of the Higher 

Education Act of 1965 (20 U.S.C. 1070 

et seq.) or that is extended to a 

consumer with the expectation that the 

funds extended will be used in whole or 

in part to pay post-secondary education 

expenses. A loan that is extended in 

order to refinance or consolidate a 

consumer’s existing post-secondary 

education loans is also a post-secondary 

education loan. However, no loan 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 loan. 

Student loan servicing means: 

(i)(A) Receiving any scheduled 

periodic payments from a borrower or 

notification of such payments and 

(B) Applying payments to the 

borrower’s account pursuant to the 

terms of the post-secondary education 

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Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations 73407 

1See 12 U.S.C. 1423, 1432(a). 

2See 12 U.S.C. 1426(a)(4), 1430(a), 1430b. 

3See 12 U.S.C. 1427. 

4See 12 U.S.C. 1424; 12 CFR part 1263. 

5 12 U.S.C. 1431. 

6 12 CFR part 1270. 

7See 12 CFR 1270.4(a), 1270.10(a). 

8The Federal Housing Finance Board was the 

regulator of the Bank System from 1989 through 

2008. HERA, which abolished the Finance Board 

and established FHFA, provides that all regulations 

of the Finance Board shall remain in effect and 

shall be enforceable by the Director of FHFA until 

modified, terminated, set aside or superseded by 

the Director. See Public Law 110–289, section 1312, 

122 Stat. 2798 (2008). 

9 15 U.S.C. 78l(g). See 69 FR 38811 (June 29, 

2004), codified at 12 CFR part 998, repealed, 78 FR 

15869 (March 13, 2013). 

10See 15 U.S.C. 78oo(b). 

11See 12 U.S.C. 1440a. 

12See 12 U.S.C. 1440a(a). 

13See 12 U.S.C. 1440a(b)(1). 

14See 12 U.S.C. 1440a(b)(2). 

loan or of the contract governing the 

servicing; 

(ii) During a period when no payment 

is required on a post-secondary 

education loan, 

(A) Maintaining account records for 

the loan and 

(B) Communicating with the borrower 

regarding the loan, on behalf of the 

loan’s holder; or 

(iii) Interactions with a borrower, 

including activities to help prevent 

default on obligations arising from postsecondary education loans, conducted 

to facilitate the activities described in 

paragraph (i) or (ii) of this definition. 

(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: December 3, 2013. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

[FR Doc. 2013–29145 Filed 12–5–13; 8:45 am] 

BILLING CODE 4810–AM–P 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1260 

RIN 2590–AA35 

Information Sharing Among Federal 

Home Loan Banks 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Final rule. 

SUMMARY: Section 1207 of the Housing 

and Economic Recovery Act of 2008 

(HERA) amended the Federal Home 

Loan Bank Act (Bank Act) to add a new 

section 20A, which requires the Federal 

Housing Finance Agency (FHFA) to 

make available to each Federal Home 

Loan Bank (Bank) information relating 

to the financial condition of all other 

Banks. Section 20A also requires FHFA 

to promulgate regulations to facilitate 

the sharing of such information among 

the Banks. This final rule implements 

the provisions of section 20A of the 

Bank Act. 

DATES: The final rule is effective on 

January 6, 2014. 

FOR FURTHER INFORMATION CONTACT: Eric 

M. Raudenbush, Assistant General 

Counsel, Office of General Counsel, 

Eric.Raudenbush@fhfa.gov, (202) 649– 

3084; or Jonathan Curtis, Financial 

Analyst, Office of Program Support, 

Division of Bank Regulation, 

Jonathan.Curtis@fhfa.gov, (202) 649– 

3321 (these are not a toll-free numbers), 

Federal Housing Finance Agency, 400 

Seventh Street SW., Washington, DC 

20024. The telephone number for the 

Telecommunications Device for the 

Hearing Impaired is (800) 877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. The Federal Home Loan Bank System 

The Federal Home Loan Bank System 

(Bank System) consists of twelve Banks 

and the Office of Finance (OF). The 

Banks are wholesale financial 

institutions organized under the Bank 

Act.1 The Banks are cooperatives; only 

members of a Bank may purchase its 

capital stock, and only members or 

certain eligible housing associates (such 

as state housing finance agencies) may 

obtain access to secured loans, known 

as advances, or other products provided 

by a Bank.2 Each Bank is managed by its 

own board of directors and serves the 

public interest by enhancing the 

availability of residential mortgage and 

community lending credit through its 

member institutions.3 Any eligible 

institution (generally a federally insured 

depository institution or state-regulated 

insurance company) may become a 

member of a Bank if it satisfies certain 

criteria and purchases a specified 

amount of the Bank’s capital stock.4

B. Banks’ Joint and Several Liability and 

Disclosure Requirements on COs 

The Banks fund their operations 

principally through the issuance of 

consolidated obligations (COs), which 

are debt instruments issued on behalf of 

the Banks by the OF, a joint office of the 

Banks, pursuant to section 11 of the 

Bank Act,5 and part 1270 of the 

regulations of FHFA.6 Under these 

regulations, the COs may be issued only 

through OF as agent for the Banks, and 

the Banks are jointly and severally liable 

for the timely payment of principal and 

interest on all COs when due.7

Accordingly, even when COs are issued 

with one Bank being the primary 

obligor, the ultimate liability for the 

timely payment of principal and interest 

thereon remains with all of the Banks 

collectively, which creates a need for 

each Bank to be able to assess the 

financial condition of the other Banks. 

Although the COs themselves are not 

registered securities under the federal 

securities laws, the Federal Housing 

Finance Board (Finance Board) 8

adopted regulations in 2004 requiring 

each Bank to register a class of its 

common stock (which is issued only to 

its member institutions) with the 

Securities and Exchange Commission 

(SEC) under section 12(g) of the 

Securities Exchange Act of 1934 (1934 

Act).9 Each Bank subsequently 

registered a class of its common stock 

with the SEC in compliance with that 

regulation. Separately, HERA included a 

provision requiring the Banks to register 

their common stock under section 12(g) 

of the 1934 Act, and to maintain that 

registration.10 Accordingly, each Bank 

remains subject to the periodic 

disclosure requirements established 

under the 1934 Act, as interpreted and 

administered by the SEC. 

C. New Statutory Provision Requiring 

the Sharing of Bank Information 

Section 1207 of HERA added a new 

section 20A to the Bank Act that 

requires FHFA to make available to each 

Bank such reports, records, or other 

information as may be available, relating 

to the condition of any other Bank in 

order to enable each Bank to evaluate 

the financial condition of the other 

Banks and the Bank System as a 

whole.11 The underlying objective for 

that requirement is to better enable each 

Bank to assess the likelihood that it may 

be required to make payments on behalf 

of another Bank under its joint and 

several liability on the COs, as well as 

to comply with disclosure obligations 

under the 1934 Act regarding its 

potential joint and several liability.12

Section 20A further requires FHFA to 

promulgate regulations to facilitate the 

sharing of such financial information 

among the Banks.13 Section 20A permits 

a Bank to request that FHFA determine 

that particular information that may 

otherwise be made available is 

‘‘proprietary’’ (a term that is not defined 

in the Bank Act) and that the public 

interest requires that such information 

not be shared.14 Finally, section 20A 

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