California Regulator Proposes Changes to Student Loan Servicing Laws – JD Supra

Sheppard Mullin Richter & Hampton LLP
On August 30, the Commissioner of the California DFPI issued a notice of rulemaking proposing new regulations and amendments to current regulations implementing the state’s student loan servicing laws. The proposed regulations aim to implement the provisions of the Student Loan Servicing Act and the Student Loans: Borrower Rights law by:
According to the regulator, when the state began regulating student loan servicers in 2017 with the enactment of the Student Loan Servicing Act, student loans were comprised of federal and private student loans, most commonly made by banks and credit unions using traditional loan forms such as promissory notes and loan agreements. Since then, other education financing products have emerged, such as income share agreements and installment contracts, which use different documentation and terms distinct from those associated with traditional loans. This proposed law makes clear that these products are subject to California’s state licensure requirements on student loan servicers.
Members of the public can submit comments to the regulator on these proposed laws until October 28, 2022.
Putting It Into Practice: As we recently reported, the DFPI has recently found that income share agreements offered by a fintech company to finance higher education are student loans for purposes of licensure under the Student Loan Servicing Act. Given the recent activity by the California regulator, companies offering financing products for student loans should review the proposed regulations to see if their products would fall under the purview of the state’s licensing laws.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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