Amid growing concerns over the federal government’s “hands off” approach to regulating the student loan business, New York Governor Andrew Cuomo released 3 NYCRR 409, a proposed regulation aimed at providing significant consumer protections for New York student loan borrowers, to the public for comment. The deadline for comment on the regulation is September 29.
Proposal of Part 409
Governor Andrew M. Cuomo released for public comment a new regulation (“Part 409”) aimed at providing significant consumer protections for New York student loan borrowers. The proposed rules, promulgated pursuant to Section 718 of the New York Banking Law (effective October 9, 2019), are of little surprise, given that Governor Cuomo and the Superintendent of the New York Department of Financial Services (“NYDFS”), Linda Lacewell, have been quite outspoken about their increasing concerns about the state of the student loan market in New York.
Activities within the Scope of Part 409
To further the NYDFS’ mission, Part 409 provides that, except as otherwise provided in New York laws and regulations, “every person engaged in the business of servicing student loans owed must be licensed by the [NYDFS] as a student loan servicer.”
For purposes of Part 409, “student loan servicer” means “a person engaged in the business of servicing student loans owed by one or more borrowers.” Further, Part 409 defines the term “student loan” as “any loan to a borrower to finance postsecondary education or expenses related to postsecondary education.”
An entity is deemed to be “servicing” if it is:
- receiving any payment from a borrower pursuant to the terms of any student loan;
- applying any payment to the borrower’s account pursuant to the terms of a student loan or the contract governing the servicing of any such loan;
- during a period where a borrower is not required to make a payment on a student loan, maintaining account records for the student loan and communicating with the borrower regarding the student loan on behalf of the owner of the student loan promissory note; or
- in conjunction with the activities described [above] (a) providing any notification of amounts owed on a student loan by or on account of any borrower; (b) performing other administrative services with respect to a borrower’s student loan; or (c) interacting with a borrower with respect to or regarding any attempt to avoid default on the borrower’s student loan and facilitating the [receipt or application of payments].
Notably, “servicing” excludes “collecting, or attempting to collect, on a defaulted student loan for which no payment has been received for 270 days or more.”
Other Requirements and Restrictions
Part 409 requires entities that “service” New York student loans to:
- Provide clear and complete information concerning fees, payments due, and terms and conditions of loans;
- Apply payments in borrowers’ best interest, rather than in ways that maximize servicer fees;
- Inform borrowers of income-based repayment and loan forgiveness options;
- Maintain and provide to consumers a detailed history of their account;
- When a borrower’s loan is transferred to a new servicer, ensure that all necessary servicing information is transferred with the loan so the borrower’s repayment is not disrupted;
- Provide accurate information to credit reporting agencies;
- Provide timely and substantive responses to consumer complaints; and
- Refrain from defrauding or misleading borrowers, engaging in any unfair, deceptive, abusive or predatory act or practice, or misapplying borrowers’ payments.
Part 409 is open for comment until September 29, 2019. Given the messaging from Governor Cuomo and the NYDFS surrounding the regulation of the New York student loan market and the fact that the NYDFS made its New York Student Loan Servicer license application available to entities engaging in “student loan servicing” through the Nationwide Multistate Licensing System & Registry on August 1, 2019, this may only be New York’s first step into regulating student loan servicers.
UPDATE: As a complement to its regulatory efforts, the DFS is also increasing its staffing on student loan servicing issues. Since our initial post, Superintendent Lacewell has announced: the appointment of Mr. Winston Berkman-Breen as the DFS’s first-ever Student Advocate and Director of Consumer Advocacy; and (2) the formation of the Student Debt Advisory Board. Both appointments, part of the DFS “Step Up for Students” initiative, highlight that safeguarding student loan borrowers is a priority for both Governor Cuomo and Superintendent Lacewell.