California and the District of Columbia have recently released regulations under their respective student loan servicing laws. Each is taking comments on its regulations, but whereas California has merely issued proposed regulations, the District of Columbia has issued emergency regulations that are currently in effect. A brief summary of the regulations and their effective dates appears below, with links to more detailed discussions that also note the extraordinarily small number of complaints to the CFPB from residents of these jurisdictions as well as the bizarre economic impact of these licensing regimes, which will effectively result in the Department of Education paying the administrative expenses incurred by states asserting the authority to supervise federal student loan servicers.
California
The California Department of Business Oversight (DBO) has released proposed regulations under the state’s Student Loan Servicing Act. The legislation, approved by the Governor September 29, 2016, authorized the Commissioner of the DBO to exercise rulemaking authority beginning January 1, 2017. The proposed regulations were issued on September 8, 2017 and are subject to comment until November 6, 2017. Unless exempt, any person directly or indirectly engaged in the business of “servicing a student loan” must comply with the Act and the final regulations beginning July 1, 2018.
In particular, the proposed regulations provide additional restrictions and responsibilities related to the licensing, borrower protection, and recordkeeping provisions of the Act. The borrower protection provisions include requirements related to online account records, the application of payments from borrowers and co-signers, training requirements for customer service representatives, and online and written notifications of borrower benefits. In August the DBO announced that Melinda Lee was selected as the Financial Institutions Manager for the DBO’s new Student Loan Servicing Program. For more information about the proposed regulations, please see our full coverage here.
Washington, D.C.
The District of Columbia Department of Insurance, Securities and Banking (DISB) has released a Notice of Emergency and Proposed Rulemaking to implement the Student Loan Ombudsman Establishment and Servicing Regulation Amendment Act of 2016. The Act, which became effective February 18, 2017, directed the Commissioner of the DISB to issue rules implementing the Act’s Student Loan Ombudsman and licensing provisions within 180 days of the Act’s effective date. Although it did not meet that deadline, as we reported, the DISB did start accepting applications and transition filings for the Student Loan Servicer License on the National Mortgage Licensing System (NMLS) on August 10, 2017.
However, as apparently permitted by Section 2-505 of the DC Code, the Student Loan Servicer emergency rules were adopted and made effective on September 8, 2017. The emergency rules would seem to be subject to comment for at least 30 days and final rules are expected to be adopted before the emergency rules expire on January 6, 2018. Unless exempt, any person that is directly or indirectly servicing a “student education loan” must comply with the Act and the rules. The emergency rules outline specific application requirements and ongoing obligations for licensees, such as recordkeeping, renewal, notification, and examination requirements. In addition, we have been informed by the DISB that Charles Burt was appointed as the Student Loan Ombudsman earlier this summer. For more information about the rules, please see our full coverage here.
