New York State’s Department of Financial Services (“NYDFS”) has issued new proposed regulations regarding licensing and servicing standards for student loan servicers operating in the state.
The proposed regulations stem from state legislation passed in April 2019, known as Article 14-A, which requires student loan servicers to obtain a license from the DFS before servicing student loans owed by borrowers residing in New York, to adhere to servicing standards set forth in the legislation, and to refrain from certain prohibited activities.
The regulations define “servicing” as:
- “receiving any payment from a borrower pursuant to the terms of any student loan,”
- “applying any payment to the borrower’s account pursuant to the terms of a student loan or the contract governing the servicing of any such loan,”
- “during a period where a borrower is not required to make a payment on a student loan, maintaining account records for the student loan and communicating with the borrower regarding the student loan on behalf of the owner of the student loan promissory note,” or
- in conjunction with the activities described above, “providing any notification of amounts owed on a student loan by or on account of any borrower,” “performing other administrative services with respect to a borrower’s student loan,” or “interacting with a borrower with respect to or regarding any attempt to avoid default on the borrower’s student loan . . . .”
“Servicing” does not include “collecting, or attempting to collect, on a defaulted student loan for which no payment has been received for 270 days or more.”
Pursuant to the regulations, student loan servicers are required to apply for a license from the superintendent of NYDFS, who will consider “whether the financial responsibility, experience, character, and general fitness of the application and, if applicable, the members, officers, partners, directors, and principals of the application, are such as to command the confidence of the community and to warrant belief that the business will be operated honestly, fairly, and efficiently within the purpose of article 14-A of the banking law.”
The servicing standards proposed in the regulations include the requirements to “not misrepresent or omit any material information in connection with servicing of a student loan” and “not provide inaccurate information to a consumer reporting agency.”
In addition, the regulations propose that student loan servicers be required to file an annual report with the NYDFS each year and to comply with the department’s cybersecurity rules.
The NYDFS published the proposed regulations in the State Register on July 31, 2019, which triggered a 60-day comment period that will expire on September 29, 2019.
Troutman Sanders will continue to report on new developments with the New York Department of Financial Services and other institutions involved with the regulation of student loan servicers.