Wells Fargo & CompanyWFC , the world's second largest originator of private student loans, has come under the regulatory scanner of Consumer Financial Protection Bureau ("CFPB"), according to the Wall Street Journal. However, people with knowledge about the matter claimed that the financial bigwig has been facing CFPB investigation since the past one year.
While no particular reason for investigation into Wells Fargo's practices has been cited till now, CFPB is likely to examine the bank's payment processing procedures and the steps taken to help distressed borrowers.
Whether the investigation will culminate into any enforcement action or settlement remains uncertain. However, any action will considerably impair the fragmented private student loan market that likely has less than 10 players.
CFPB in Focus
CFPB recently disclosed that it has received loan servicing complaints from over 30,000 troubled borrowers after initiating a public enquiry regarding the same in May 2015. Notably, its concerns over widespread servicing failures in the private student loan market were revealed in a report issued last month.
The report states that the watchdog will closely examine practices of industry players, with an aim to take action against companies engaged in shoddy practices. Additionally, it intends to introduce reformed industry-wide rules in order to safeguard borrowers.
Notably, the $1.2-trillion student loan industry, which is the second largest consumer debt market in the U.S. after mortgages, has witnessed a nearly 25% rise in defaults, on a dollar-term basis, over the past 2 years. A rapidly rising default rate might have alarmed CFPB, which disclosed that "One in four student loan borrowers are currently in default or struggling to stay current on their loans".
Apart from Wells Fargo, the watchdog has already fined Discover Financial Services DFS for faulty billing and interest reporting & collecting practices in Jul 2015, and is currently probing Navient Corporation NAVI on similar grounds.
Wells Fargo presently carries a Zacks Rank #3 (Hold). BNC Bancorp BNCN is a better-ranked stock in the finance space, sporting a Zacks Rank #1 (Strong Buy).