New York Times Back State Arguments in Student Loan Protections
In a Sunday editorial, "Student Loan Industry Finds Friends in Washington," the New York Times took the Education Department to task. The issue: asserting authority to preempt state consumer protection laws and shield wayward companies that service student loans. Key points in the editorial:
The document claims that the federal government can preempt state laws that rein in student loan servicing companies if such a law 'undermines uniform administration of' the student loan program.
The statement clearly is intended to intimidate state legislators across the country that are considering proposals to curb well-documented abuses by this industry.
The loan servicing industry's longtime failures...[include] pushing struggling borrowers into default -- which essentially ruins their financial lives -- by giving them misinformation, by making it difficult for them to refinance their loans and pay lower rates, and by withholding information about affordable payment options.
What is striking is that the Education Department released the preemption statement even after leading regulatory experts had condemned the idea as harmful and legally unsustainable. Earlier this month, the Conference of State Bank Supervisors, which represents regulators in all 50 states, shredded the legal arguments behind the preemption idea, pointing out that education officials were not empowered to strip the states of their traditional -- and primary -- authority over debt collection and other aspects of the financial services industry
In a letter to Secretary Betsy Devos, CSBS President and CEO John Ryan wrote: "This effort at preemption by regulatory fiat runs counter to the Congressionally mandated state-federal balance in financial regulation and exceeds the Department's authority...Responsibility for regulating and supervising debt collectors -- like other nonbank financial services -- has historically resided at the state level...Consumers benefit because the proximity of the state regulatory framework has proven to be more accountable to local concerns...State regulators firmly oppose this attempt at preemption through a mere interpretive notice. This decision rests with Congress, and not with a federal agency."
Watch this space.