On September 9, the California Department of Financial Protection and Innovation (DFPI) issued a notice of proposed rulemaking to adopt new regulations and amend current regulations implementing the Student Loan Servicing Act (Act), which provides for the licensure, regulation, and oversight of student loan servicers by DFPI (formerly the Department of Business Oversight) (previously covered by InfoBytes here). The proposed rulemaking also outlines new clarifications to the Student Loans: Borrower Rights Law, 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 Act took effect five years ago, additional private student loan financing products have emerged, such as income share agreements and installment contracts, which use terminology and documentation distinct from traditional loans. DFPI commented that while lenders and servicers of these products have asserted that their products do not fall within the definition of a student loan and are not subject to the statute’s requirements, these education financing products serve the same purpose as traditional loans—“help pay the cost of a student’s higher education”—and are therefore student loans subject to the Act, and servicers of these products must be licensed and comply with all applicable laws. The proposed rulemaking, among other things, (i) defines the term “education financing products,” which now fall under the purview of the Act, along with other related terms; (ii) amends various license application requirements, included amended financial requirements for startup applicants; (iii) outlines provisions related to non-licensee (e.g., servicers that do not require a license but that are subject to the Student Loans: Borrower Rights Law) filing requirements; and (iv) specifies that servicers of all education financing products must submit annual aggregate student loan servicing reports to DFPI. The proposed rulemaking also removes certain unnecessary requirements based on DFPI’s experience in administering the Act to reduce the regulatory burden.
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