In connection with passing New York’s 2020 Executive Budget, the state enacted sweeping new regulations on student loan servicing. Governor Andrew Cuomo previously announced the regulations in a statement saying, “The student loan servicer industry has repeatedly raised serious consumer protection concerns that need to be addressed and with this proposal, we will provide sweeping new protections for borrowers and help crack down on unscrupulous lending practices.” Cuomo further stated that the purpose of the legislation is to ensure that no student loan servicer can mislead a borrower or engage in any predatory act or practice, misapply payments, provide credit reporting agencies with inaccurate information, or any other practices that may harm the borrower.
The legislation imposes a requirement on loan servicers to obtain a license from the New York Department of Financial Services in order to service student loans owned by New York residents. The legislation also imposes restrictions on application of nonconforming payments, including asking a borrower how to apply a nonconforming payment.
Other practices prohibited by the legislation include, but are not limited to:
- Misapplying a borrower’s payments;
- Reporting inaccurate information to consumer reporting agencies;
- Misrepresenting material information to a borrower;
- Refusing to contact a borrower’s authorized representative; and
- Misleading a borrower.
For each non-willful violation of the law, a penalty of up to $2,000 or twice the economic gain attributable to the violation may be imposed on the servicer. For each willful violation, a penalty of up to $10,000 or twice the economic gain attributable to the violation may be imposed. These penalties are on top of those imposed by other state or federal laws.