NCUA chairman Debbie Matz has responded to a group of advocacy organizations that called on the NCUA to look into what they believe to be predatory student loans.
Matz's response came in the form of a letter, which stated that although the NCUA has no enforcement authority over CUSOs or other third parties – including ITT Educational Services, the Rochdale Group and Student CU Connect – at the NCUA's instigation, the seven credit unions that had participated in a lending program deemed predatory by the advocacy organizations ceased purchasing those loans in 2012 after a three-year contract expired.
The groups sent a letter to the NCUA in July, warning that loans made by federally chartered credit unions; federally insured, state chartered credit unions and CUSOs "may constitute unfair and deceptive trade practices, and threaten the credit unions' safety and soundness by posing serious credit, reputation and compliance risks."
The letter accused ITT Educational Services for allegedly developing a scheme to issue high-cost private student loans to its students through a CUSO.
Matz's response also stated that the NCUA has issued student lending guidance to all federally insured credit unions and examination staff.
"The December 2013 Supervisory Letter includes detailed instructions for monitoring graduation rates, income prospects, default rates and performance of third parties," her response read.
Her letter continued to state that the NCUA has addressed the need for credit unions that make private student loans to plan "exit strategies" and cease funding loans for "schools with high default rates and third parties that are not performing adequately."
Matz's letter also said that federally insured credit unions must follow regulatory requirements designed to protect the consumer and the safety and soundness of the financial institution, and that while the NCUA does not have statutory authority to monitor third parties directly, the regulators make every effort to do so indirectly through credit unions. Matz said the NCUA will continue to make obtaining authority over third-party vendors a top priority.
Carrie Hunt, senior vice president of government affairs and general counsel for NAFCU, said Matz's description of the NCUA's regulatory response to ITT Educational Services is a perfect example of why the NCUA does not need third-party vendor authority.
"The NCUA identified a potential problem and addressed it efficiently with the entities it regulates," Hunt said. "The agency had all the tools it needed to address any possible concern with the activities of credit unions in connection with a third party."
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