States Seek Help From Department Of Education To Regulate Lending Services

Officials from 11 states on Tuesday called on Education Secretary Miguel Cardona to reverse two Trump administration policies they say prevent them from regulating private student loan services.

State financial regulators, including New York Department of Financial Services Superintendent Linda Lacewell, wrote Cardona that states have passed laws requiring repairers to be licensed and meet certain consumer protection standards.

“For years there have been cases of providers providing inaccurate information or engaging in damaging misconduct, often resulting in increased costs and extended repayment periods for borrowers,” the regulators wrote.

However, then Secretary Betsy DeVos’ Department of Education passed policies that tie the hands of states. In 2018, the ministry published a guidance document claiming that federal law prevents states from regulating servers. The DeVos reporting department and loan managers also ruled that the federal Privacy Act of 1974 prohibits student loan managers from sharing certain information with states.

While the Obama administration shared information on the practices of service providers with states, “the DeVos-era Department of Education often simply refused to produce such data, severely hampering consumer protection efforts. states in the student loan sector, ”the regulators wrote.

“These misguided and unhealthy policies inhibit the ability of states to oversee this service industry in the midst of a student loan debt crisis,” the letter said.

Regulators in California, Colorado, Connecticut, Illinois, Maine, Massachusetts, New Jersey, New York, Rhode Island, Washington and Wisconsin signed the letter.

“We share the commitment of these states to protect student loan borrowers,” Department of Education spokesperson Kelly Leon said. The ministry is reviewing its policies regarding loan managers “to ensure that states can be strong partners in ensuring accountability,” she said.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, said officers fear states are creating a mishmash of different rules across the country. “What’s important here is to have a single, consistent set of rules so that everyone is clear on how best to help borrowers be successful,” he said.

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