The CFPB has issued its examination procedures for student lenders.  The procedures will be used by the CFPB’s examiners in examinations of large banks that make private student loans (meaning banks with total assets of more than $10 billion), nonbank private student lenders and service providers to such entities. The procedures consist of a series of modules that address topics such as advertising and marketing, qualification and origination, servicing, consumer complaints and collections.  

Consistent with prior statements by the CFPB, the modules reflect an extraordinarily heavy emphasis on fair lending issues.  The advertising and marketing module and the qualification and origination module contain a series of directions for the examiner to use to assess a lender’s compliance with the Equal Credit Opportunity Act and Regulation B.   In the qualification and origination module, the examiner is specifically directed to assess a lender’s business justification for any use of a school cohort default rate or any other school-specific criteria (such as graduation rate), without even being required to first make a preliminary determination of a potential disparate impact arising from the use of such criteria.  Variables used in credit scoring and automated underwriting systems are also to be evaluated for fair lending compliance. 

The servicing module instructs the examiner to determine whether the lender, a service provider or both should be examined for compliance.  It directs the examiner to look at repayment issues that include the servicer’s presentation of information about repayment options, handling of applications for such options, and disclosure of terms and fees related to such options.  The module also looks at whether a servicer is aware of the available borrower benefits (such as rate reductions)  and provides them to qualified borrowers.  Payment issues are addressed, including when payments are posted and credited, whether  late charges are properly assessed, how payments are applied, how additional principal payments and partial payments are handled, and the adequacy of periodic statements. 

The complaints module directs an examiner to review the process for receiving, tracking and responding to consumer complaints.  In the collection module, the  examiner is directed to obtain a sample of the lender’s servicing records for consumers in default and listen to a sample of collection calls.  In addition to assessing compliance with the Fair Debt Collection Practices Act if applicable, an examiner is expected to assess whether a servicer acts  appropriately when contacting defaulted borrowers and look at how workouts for defaulted accounts are handled.  While the discussion of workouts does not directly mention the ECOA, it directs an examiner to determine whether a lender provides payment options consistently to all borrowers in similar situations.