DFPI Proposes Changes to Student Loans Servicing Act; says revenue sharing agreements and installment contracts are student loans

On September 9, the California Department of Financial Protection and Innovation (DFPI) issued a Notice of Proposed Rulemaking to Pass New Regulations and Amend Current Regulations Implementing the Student Loan Servicing Act (law), which provides for the licensing, regulation and oversight of student loan servicers by DFPI (formerly the Department of Business Oversight) (previously covered by InfoBytes here). The proposed regulations also outline new clarifications to the Student Loans: Borrowers’ Rights Act, which was enacted in 2020 (effective January 1, 2021) to provide new requirements for student loan servicers (previously covered by InfoBytes here).

In its initial statement of reasons for the new regulations, DFPI noted that since the law came into force five years ago, other private student loan financing products have emerged, such as income and installment contracts, which use separate terminology and documentation from traditional loans. . DFPI noted that although the lenders and managers of these products have asserted that their products do not fall under the definition of a student loan and are not subject to the requirements of the law, these education finance products serve the same purpose as traditional loans: “to help defray the costs of a student’s higher education” – and are therefore student loans subject to the law, and the servicers of these products must be licensed and comply with all Applicable Laws The proposed regulations, among other things, (i) define the term “educational finance proceeds,” which now fall within the scope of the Act, as well as other related terms; (ii) modifies various license application requirements, including modified financial requirements for start-up applicants; (iii) describes the non-licensee provisions (for example, service agents who do not need a license but are subject to student loan deposit requirements: Borrowers’ Rights Act; and (iv) clarifies that managers of all education finance products must submit aggregate annual student loan servicing reports to the DFPI. The proposed regulations also remove some unnecessary requirements based on DFPI’s experience in administering the Act to reduce regulatory burden.

Comments on the Notice of Proposed Rulemaking are due October 28th.


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