Kentucky recently enacted HB 494, titled the “Student Education Loan Servicing, Licensing, and Protection Act of 2022,” which will require student education loan servicers to be licensed in Kentucky. The Act applies to servicers of private student loans and federal student loans.
Servicers of private student loans must submit a licensing application to the Commissioner of the Kentucky Department of Financial Institutions that includes certain specified information, including the name of at least one managing officer who has a minimum of at least two years’ experience in the student education loan servicing industry. Among other requirements, an applicant must meet and maintain a minimum net worth in an amount to be prescribed by the Commissioner. After licensure, any changes in control will require the Commissioner’s prior written approval.
Companies servicing only federal student loans will automatically be deemed licensed to service federal student education loans in Kentucky; however, such companies must submit a notification filing (instead of a licensing application) to the Commissioner and are prohibited from engaging in servicing non-federal student loans unless they are otherwise exempt or have obtained a license.
All licensed student loan servicers, including federal student loan servicers, must comply with the Act’s substantive requirements including:
- Maintaining all records for a minimum of three years after satisfaction of a loan (with this requirement also applicable to entities exempt from licensing);
- Paying an annual assessment fee, which will be based on the volume of loans serviced in Kentucky or for Kentucky residents;
- Annually filing a written renewal report which must include recent audited annual financial statements and information about the volume and dollar amount of loans serviced in Kentucky; and
- Not engaging in unfair, deceptive, or abusive acts or practices.
The Act provides a private right of action and authorizes the Commissioner to impose civil penalties of up to $25,000 per violation for violations of the Act. It also authorizes the Commissioner to require license applications to be submitted through the Nationwide Multistate Licensing System (NMLS). Currently, there does not appear to be any information regarding when or where the application form will be made available.
Finally, the Act takes effect 90 days after the official adjournment of the legislative session, the last day of which is April 14, 2022.
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