January 29, 2023

Volume XIII, Number 29

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California Regulator Proposes Changes to Student Loan Servicing Laws

On August 30, the Commissioner of the California DFPI issued a notice of rulemaking proposing new regulations and amendments to current regulations implementing the state’s student loan servicing laws. The proposed regulations aim to implement the provisions of the Student Loan Servicing Act and the Student Loans: Borrower Rights law by:

  • clarifying that all education financing products—including traditional loans, income share agreements, and installment contracts—are student loans for purposes of regulation under the Student Loan Servicing Act and the Student Loans: Borrower Rights law;

  • clarifying that servicers of all education financing products must be licensed as student loan servicers under the Student Loan Servicing Act;

  • specifying that servicers of all education financing products must submit an annual report to the DFPI regarding the volume and dollar amount of all education financing products serviced during the previous year, on a form specified by the DFPI; and

  • revising certain existing regulations to remove requirements deemed unnecessary to reduce regulatory burden on student loan servicers.

According to the regulator, when the state began regulating student loan servicers in 2017 with the enactment of the Student Loan Servicing Act, student loans were comprised of federal and private student loans, most commonly made by banks and credit unions using traditional loan forms such as promissory notes and loan agreements. Since then, other education financing products have emerged, such as income share agreements and installment contracts, which use different documentation and terms distinct from those associated with traditional loans. This proposed law makes clear that these products are subject to California’s state licensure requirements on student loan servicers.

Members of the public can submit comments to the regulator on these proposed laws until October 28, 2022.

Putting It Into Practice: As we recently reported, the DFPI has recently found that income share agreements offered by a fintech company to finance higher education are student loans for purposes of licensure under the Student Loan Servicing Act. Given the recent activity by the California regulator, companies offering financing products for student loans should review the proposed regulations to see if their products would fall under the purview of the state’s licensing laws.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 259
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Associate

Pouneh Almasi is an associate in the Intellectual Property Practice Group in the firm's San Francisco office.  

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Pouneh’s practice focuses on intellectual property litigation with an emphasis on copyright and trademark issues.  She is also a member of the firm’s Blockchain Technology & Digital Currency Team.

During law school, Pouneh worked as a judicial extern to the Honorable Jacqueline Scott Corley at the Northern District of California in San Francisco...

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