“With a chartered bank, we will have a better opportunity to bring new borrower-focused solutions to market that leverage our superior customer experience, tuition payment plans, and education lending and servicing,” Nelnet President Tim Tewes said Wednesday in a statement.
The charter would allow Nelnet to avoid the same level of Federal Reserve supervision as other bank holding companies while giving the firm access to federal deposit insurance. It also means that as a federally insured depository institution, the company can circumvent state interest rate limits, according to the nonprofit Center for Responsible Lending.
This week, the organization sent a letter urging FDIC Chairman Jelena McWilliams to hold public hearings on pending charter applications, arguing that the agency was creating a pathway for loosely regulated online lending.
The center and other advocacy groups also take issue with Nelnet’s track record of collecting student loan payments for the federal government. Although Nelnet has not faced the same level of legal scrutiny as its competitors, the company is routinely sued by borrowers over the processing of their payments or the accuracy of reports to credit bureaus.
Nelnet is fighting a class-action lawsuit accusing the company of mismanaging the accounts of borrowers enrolled in student loan repayment plans tied to their income. The Omaha company has denied the allegations.
“Allowing Nelnet to have a banking charter and originate loans while having trouble servicing their own student loan customers is dangerous — and it creates a huge conflict of interest, especially because banks are exempt from state student loan servicer laws,” said Whitney Barkley-Denney, legislative policy counsel at the nonprofit Center for Responsible Lending. “The FDIC shouldn’t be inviting more trouble than we already have with respect to student loan regulation.”
Nelnet spokesman Ben Kiser said the company is structured in a way that will not exempt the loan servicing division from state laws. He said Nelnet Bank will simply provide families interested in private student loans more options and add some competition to the marketplace.
“With diversified sources of funding that include deposits in addition to securitizations, the bank would be equipped to maintain steady lending for students and families through all economic cycles,” Kiser said.