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Financial Services Law Insights and Observations

Groups ask Education Dept. to stop preempting states on student lending

Federal Issues State Issues CSBS State Regulators Department of Education Student Lending Debt Collection Preemption

Federal Issues

On July 7, the Conference of State Bank Supervisors (CSBS) and the North American Collection Agency Regulatory Association (NACARA) sent a letter to Department of Education Secretary Miguel Cardona urging the Department to rescind recent policies “claiming preemption or otherwise impairing state regulation of federal student loan servicers and debt collectors.” The letter acknowledges steps taken by the Department to facilitate coordination and collaboration with state financial regulators but notes that additional action is required to accomplish a shared mission of protecting student borrowers. Among other things, the letter discusses several Department actions taken over the years, including the Department’s 2018 position that state regulation of servicers of loans made under the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan Program is preempted by federal law. The letter urges the Department “to rescind the 2018 preemption notice and formally recognize that state oversight and regulation is fully applicable to federal student loan servicers and debt collectors, entirely appropriate, and not in conflict with the purpose of the [Higher Education Act].” The letter also discusses revised guidance issued in May concerning the handling of outside requests for Department records and data. As previously covered by InfoBytes, the revised guidance supersedes the Department’s 2017 guidance and creates a “streamlined and expedited process” for reviewing information requests made by any state or federal authority for information pertaining to companies engaged in student loan lending or collections. However, CSBS and NACARA emphasize that the Department should “recognize that state financial regulators are independently authorized to access records in possession of the federal student loan servicers and debt collectors subject to state regulation.” Additionally, the letter requests, among other things, that the Department take additional action deemed necessary to “fully return” to a policy of collaboration for protecting student loan borrowers, pointing out that timing is important as most federal student loan repayments resume in October.

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