On August 15, NYDFS announced a settlement with a student loan servicer and its parent company to resolve allegations that the companies failed to comply with state financial services law requirements when servicing, purchasing, and originating student financing agreements. According to the consent order, the student loan servicer—which, among other things, services student financing agreements that constitute retail installment obligations within the meaning of N.Y. Banking Law § 491(6-a)—allegedly engaged in the business of a sales finance company without being licensed by NYDFS and failed to follow the E-Sign Act’s disclosure requirements. NYDFS also claimed the companies failed to disclose to consumers (i) their right to receive non-electronic TILA disclosures; (ii) how to withdraw consent for notice by electronic means; and (iii) the method for requesting paper copy TILA disclosures. Furthermore, the companies also allegedly failed to provide consumers with a statement of the “requirements for access to and retention of TILA disclosures provided to them electronically.” In addition, NYDFS stated that the parent company provided New York consumers with promissory notes containing clauses purportedly allowing for the capitalization/compounding of interest under certain circumstances, which violated state banking laws, even though the companies contended they did not actually capitalize interest.
In addition to paying a $203,000 civil penalty and $33,309 in disgorgement, the student loan servicer will apply for a sales finance company license and a student loan servicer license, and the companies will correct issues concerning their capitalization of interest as well as remove incorrect information from their loan documents.
According to NYDFS, New York’s student loan servicer licensing law, which requires companies servicing student loans held by state residents to meet new standards, takes effect October 9.
This content originally appeared in Buckley’s Infobytes blog, a collection of news and alerts covering the financial services industry. To read more or have the Infobytes weekly newsletter delivered to your inbox, please visit infobytesblog.com.