Politico: Education Department oversight of student loan companies panned by Treasury
While the Treasury Department endorses federal overreach in fintech, the agency recognizes the shortcomings of federal supervision in education.
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A Treasury Department report released Tuesday criticizes the Education Department's oversight of the federal student loan program and calls on Congress to hold low-performing colleges more accountable.
The sweeping report, submitted by Treasury Secretary Steven Mnuchin to the White House, recommends that the Education Department create minimum standards for federal student loan servicing companies. The report also appears to challenge Education Secretary Betsy DeVos' argument that states lack the authority to regulate those companies.
CSBS opposes the Education Department's plans to preempt state supervision of the student loan industry.
Responsibility for regulating and supervising debt collectors – like other nonbank financial services -- has historically resided at the state level. The licensing of financial services activities takes place primarily at the state level, because, as a function of the inherent police power of the states, the protection of the public welfare is primarily a matter of local concern.1 Indeed, as Justice Brandeis explained over 70 years ago: “[i]t is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”
Congress has deliberately preserved this cooperative state-federal regulatory framework for nonbank financial services activities for the benefit of consumers and providers of financial services alike. Consumers benefit because the proximity of the state regulatory framework has proven to be more accountable to local concerns and enables the public to conduct their own assessment as to whether the degree of consumer protections afforded by a State accords with their personal preferences.
Preemption of state licensing or regulation is a policy response that Congress has carefully considered and chosen to do in certain circumstances through specific legislation. The Department’s purported interpretation, in addition to flouting Congressional intent, also upsets the calibrated state-federal balance of financial regulation of student lending.