NY Department of Financial Services Issues Proposed Student Loan Servicer Regulations

The New York Department of Financial Services (NYDFS) has issued proposed regulations to implement the legislation enacted in April 2019 that requires servicers of student loans to be licensed, imposes servicing standards, and prohibits certain practices.  On July 31, the NYDFS published a notice of proposed rulemaking in the State Register, triggering a 60-day comment period.

The licensing requirement would apply to “every person engaged in the business of servicing student loans owed.”  The activities that would constitute “servicing” include any of the following:

“Servicing” would not include “collecting, or attempting to collect, on a defaulted student loan for which no payment has been received for 270 days or more.”  Exempt entities would include banks and credit unions, servicers of only federal student loans, and debt collectors whose student loan collection business involves collecting or attempting to collect on student loans for which no payment has been received for 270 days or more and who do not service non-defaulted student loans as part of their business.

A “student loan” would mean “any loan to a borrower to finance postsecondary education or expenses related to postsecondary education” and includes federal and private student loans.  A “borrower” is defined as “any resident of this state who has received a student loan or agreed in writing to pay a student loan or any person who shares a legal obligation with such resident for repaying a student loan.”  The servicing standards in the proposal include:

Student loan servicers would also be required to comply with New York regulations on cybersecurity.  The practices prohibited by the proposal include “misapplying payments to the outstanding balance of any student loan or to any related interest or fees” and engaging in any “unfair, deceptive, abusive, or predatory act or practice.”  The proposal includes definitions for the terms “unfair” and “abusive.”

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National Law Review, Volumess IX, Number 224