On July 31, NYDFS published a notice of proposed rulemaking in the New York State Register. The proposed rule would implement legislation related to the supervision, regulation, and licensing of private student loan servicers passed in March as part of the state’s FY 2020 budget. As previously covered by InfoBytes, unless exempt from certain provisions, student loan servicers must comply with the requirements set forth in the amendments to the banking law and be licensed by NYDFS in order to service student loans owned by residents of New York. Entities exempt from the licensing requirements include servicers of federal student loans, banking organizations, foreign banking organizations, national banks, federal savings associations, federal credit unions, or any bank or credit union organized under the laws of any other state.

Among other things, the proposed regulation outlines servicing standards, examination guidelines, cybersecurity compliance requirements, and definitions for the terms “unfair” and “abusive.” A list of prohibited practices is also provided, which includes: (i) employing schemes to defraud or mislead borrowers; (ii) engaging in unfair, deceptive, abusive, or predatory acts or practices; (iii) “misapplying payments to the outstanding balance of any student loan or to any related interest or fees”; (iv) making false statements or omissions connected to information provided to a government agency; (v) failing to promptly respond to communications received from NYDFS; and (vi) failing to provide responses to consumer complaints.

Generally, the requirements will take effect October 9, with the exception of a phased-in transition period for certain cybersecurity provisions related to 23 NYCRR Part 500 that gives student loan servicers until April 9, 2020 to comply. Comments on the proposed regulation are due September 30.

 

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.