Washington
A bill that would expand federal oversight of private student loans is making its way through Congress.
The measure, a central plank of the White House's plan to overhaul the financial regulatory system, would create a new Consumer Financial Protection Agency to replace the current patchwork of federal regulators. Consumer advocates hope that the new agency would place restrictions on the marketing of private student loans and make private loans dischargeable in cases of death, disability, or college closure. The U.S. House of Representatives Financial Services Committee took up the bill last week, and will continue debating the measure on Tuesday.
If enacted, the bill would give the new agency, known as the CFPA, authority over all forms of consumer credit, including private student loans. It's unclear, however, whether the agency would have oversight over institutional "gap loans," so called because they cover the difference between federal aid and the cost of college. As currently written, the bill would exempt from expanded oversight the loans that small businesses make to their customers. Some consumer advocates worry that the exemptions could extend to gap loans made by colleges, and are backing an amendment to the bill that would clarify that the loans fall under the agency's jurisdiction.
"To effectively protect consumers, the CFPA must have full authority to regulate private student loans regardless of the institution offering them," consumer advocates and college lobbyists wrote in a letter sent to Congress this month. "For consumers, a private student loan can pose the same serious risks whether issued by a financial institution or by a school."
Gap loans, which are most common at for-profit colleges, are already regulated under the Truth in Lending Act, with new rules set to take effect next February. The rules, which Congress added during last year's reauthorization of the Higher Education Act, will require lenders to inform applicants about federal student-loan options and disclose more information about their private loans, including interest rates and estimated monthly payments.
But consumer advocates say stricter oversight is needed to protect borrowers.
There's a reason why Andrew M. Cuomo, New York's attorney general, called private loans "the Wild West of lending," said Lauren Asher, president of the Institute for College Access and Success. "We hope CFPA will bring more law and order."
Comments
1. atana09 - October 20, 2009 at 09:17 am
Interesting that the proposed bill would restrict consumer protections to what would be catastrophic extremes such as 'death, disability and college closure'. It does demonstrate that certain members of the house have been on heel so long by the educational lenders, that moving beyond what they have commanded is almost inconceivable to them. It would seem that restoring other very basic consumer rights, such as charter bankruptcy protections for private, sub and federal educational loans shouldn't be so far beyond the comprehension of the house committee.
But a little progress is progress, even if it carries the lingering aire of the old influence peddling.
CFPA is in itself a admirable concept, and it is about time for such a body to exist. But it must be a entity which has some teeth, and not exists primarily as a politically symbolic move. And those teeth will need to be especially sharp to deal with a generation of abuses by the various manifestations of the educational loan industry.