Republican Senator Mike Crapo, Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, sent a letter last week to Department of Education (ED) Secretary Arne Duncan to raise several concerns with the ED’s Title IV rulemaking efforts.  Earlier this year, the ED engaged in negotiated rulemaking, with the CFPB among the those participating in support of the rulemaking.  Negotiated rulemaking did not reach a consensus, and the ED is expected to soon be issuing its proposal. 

In his letter, Senator Crapo raises the concern shared by many observers that the ED’s proposal will include significant new restrictions on products that banks sell to college students, even if the product is not specifically designed to distribute financial aid.  He observes that in the negotiated rulemaking, the ED proposed a definition of a “sponsored account” that would include any financial account that “an enrolled student or parent of an enrolled student may choose to open, obtain, or use…to receive Title IV, HEA program funds.”  He points out because the definition “could include a basic bank account set-up by a student during freshman orientation that never receives or was intended to receive Title IV funds,” it would be impossible for banks to know which account is a “sponsored account” and lead to a presumption that most accounts held by college students are “sponsored accounts” subject to the ED’s regulations.  He expresses concern that “such an expansive approach exceeds the [ED’s] statutory authority under the HEA and will interfere with the prudential banking regulation of such financial products.” 

Senator Crapo also comments that based on outreach from his office to the federal banking regulators, the ED completed the negotiated rulemaking process “without a single consultation with prudential banking regulators even though the very product the [ED] is proposing to regulate—a consumer’s checking account—is subject to [a] myriad of existing Federal and state laws.”  He notes his concern that the ED has taken policy positions “without giving due regard to the current regulatory framework” which could lead to “inconsistent and confusing compliance regimes for financial institutions, supervisory challenges for Federal and state banking regulators, and to unintended consequences that may in the end limit student choice and convenience.” 

Finally, Senator Crapo expresses concern with the proposal’s timing.  He notes that the ED has said it intends to move quickly to have a final rule in place for next year.  According to Senator Crapo, because the ED would have to finalize its rule by November 1, 2014 for it to become effective in July 2015, this might not allow sufficient time for the ED to obtain and consider stakeholder input.  Commenting that “it is more important to get the rule right” than to finalize it by November 1, he states that the rule’s magnitude and complexity warrants a 90-day comment period.