August 19, 2018

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California Releases Second Revised Student Loan Servicer Regulations

The California Department of Business Oversight (DBO) has published a second round of modifications to its proposed regulations under the State’s Student Loan Servicing Act.  As previously covered, the DBO published its first round of revised rules last month.

The latest revisions to the regulations clarify servicer responsibilities related to application of payments, borrower communications and handling of qualified written requests (QWRs), and recordkeeping requirements, among other miscellaneous changes.

Payments

The initial regulations provided that a servicer must credit any online payment the same day it is paid by the borrower, if paid before the daily cut off time for same day crediting posted on the servicer’s website, or the next day, if paid after the posted cut off time.  These requirements, which were unmodified by the first round of revisions, have now been changed to clarify that servicers must only apply payments the same or next business day, depending on whether received before or after the published cut off time.

Borrower Communications and Qualified Written Requests

The Act requires that a servicer respond to QWRs by acknowledging receipt of the request within five business days and, within 30 days, providing information relating to the request and an explanation of any account action, if applicable.  The first round of revised regulations added the limitation that a servicer is only required to send a borrower a total of three notices for duplicative requests.  The latest revisions add two additional provisions.  First, servicers are only required to send an acknowledgement of receipt within five days if the action requested by the borrower has not been taken within five days of receipt.  Second, servicers may designate a specific electronic or physical address to which QWRs must be sent.  If designated, however, this information must be posted on the servicer’s website.

The revised regulations also further specify what is required of customer service representatives.  Now, federal and private loan servicer representatives must inform callers about alternative repayment plans if the caller inquires about repayment options.  Federal loan servicers must now also inform callers about loan forgiveness benefits, if the caller inquires about repayment options.  These regulations have evolved significantly.  The initial regulations required that representatives “be capable of discussing” alternative repayment plan and loan forgiveness benefits with callers, and be trained in the difference between forbearance and alternative repayment plans.  The latest revisions have added specific triggers for discussing repayment options—and forgiveness benefits for federal loans.

Servicer Records

The first round of revisions eliminated the DBO’s specific record keeping formatting requirements.  In its place, the latest round of revisions has added the general requirement that the books and records required by the act must be maintained in accordance with generally accepted accounting principles.  The new revisions also change the information required as part of the aggregate student loan servicing report to require the number of monthly payments required to repay the loan.

The modifications are subject to comment until July 25, 2018.  As with the first round, the revisions will not be effective until approved by the Office of Administrative Law and filed with the Secretary of State.

Copyright © by Ballard Spahr LLP

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About this Author

Brian Slagle, Philadelphia lawyer, Ballard Spahr law firm
Associate

Brian J. Slagle is an associate in the Business and Finance Department and a member of the Consumer Financial Services Group. His practice focuses on providing regulatory advice to clients on state and federal consumer finance laws. He regularly assists clients with a range of compliance and transactional issues relating to licensing, the Truth in Lending Act (TILA), Equal Credit Opportunity Act (ECOA), Electronic Funds Transfer Act (EFTA), Electronic Signatures in Global and National Commerce Act (ESIGN), the Telephone Consumer Protection Act (TCPA), the Fair Credit...

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