A&B ABstract: As we have previously discussed, effective November 27, 2019, Senate Bill 1149 (2019 N.J. Laws 200) (the “Act”), creates New Jersey’s “Student Loan Bill of Rights” and prohibits any person from “act[ing] as a student loan servicer, directly or indirectly, without first obtaining a license” from the Department of Banking and Insurance (“DOBI”).
Although the Act became effective in 2019, the DOBI did not provide an application or an application mechanism to apply for a New Jersey student loan servicer license in 2019. The DOBI recently released guidance on the application process and operational requirements for those wishing to service student loans in New Jersey.
Background:
On September 1, 2020, the DOBI released Bulletin No. 20-31 (the “Bulletin”), which provides application procedures to apply for a license. The DOBI will begin to accept license submissions from all persons on September 15, 2020. The application must be submitted through the Nationwide Mortgage Licensing System (“NMLS”).
Persons that are currently acting as student loan servicers in the state that submit license forms prior to the close of business on December 31, 2020 may continue to operate as student loan servicers, pending DOBI’s approval of the license forms. All student loan servicers that are not exempt from licensure must submit all requirements for a license by December 31, 2020.
License Types
The Act creates two separate license types. The New Jersey Student Loan Servicer license is required for persons servicing student loans other than Federal Contract Student Loans (“FCSLs”). A Federal Contract Student Loan license is required for persons servicing student loans pursuant to a contract awarded by the United States Secretary of Education under 20 U.S.C.S. 1087f.
Persons servicing FCSLs will be automatically issued a limited, irrevocable license, upon adequately demonstrating their eligibility. Those servicing FCLSs and student loans other than FCLSs are required to obtain a both a Federal Contract Student Loan license and a New Jersey Student Loan Servicer license, and must comply with all requirements applicable to both license types.
Exemptions
As we previously noted, the Act’s licensure requirement does not apply to: (1) any state or federally chartered bank, savings bank, savings and loan association or credit union; (2) any wholly owned subsidiary of any bank or credit union; and (3) any operating subsidiary where each owner of the operating subsidiary is wholly owned by the same bank or credit union.
New Jersey Student Loan Servicer Application
Persons seeking to obtain a New Jersey Student Loan Servicer license must complete a license application through the NMLS. Amongst other application requirements, applicants must submit:
- A nonrefundable license fee of $5,000;
- A nonrefundable investigation fee of $500;
- A surety bond in the amount of $30,000 plus an additional $30,000 per branch;
- A financial statement demonstrating net worth of $250,000 prepared by a CPA or public account dated within 90 days of the applicant’s fiscal year end;
- A business plan; and
- An ownership chart.
Beginning in 2021, all student loan servicer licenses will expire at the close of business on December 31 each year. Renewals will be processed through the NMLS.
Federal Contract Student Loan Servicer License Application
As noted, applicants that service FCSLs must apply for a license to engage in student loan servicing pursuant to a contract awarded by the Secretary of Education. Applicants must complete a license form and submit the form through the NMLS. Applicants must submit:
- A nonrefundable license fee of $5,000;
- A certification indicating that the person is servicing student loans pursuant to a contract awarded by the Secretary of Education. The certification must be signed and sworn to under oath before a notary public;
- For those solely servicing federal contract student loans, a surety bond in the amount of $30,000, plus an additional $30,000 for each branch office. Those servicing both federal contract student loans and student loans of any other type seeking both license types, is only required to obtain one surety bond in the amount of $30,000.
Operational Requirements and Penalties
The Bulletin discusses operational requirements for all student loan servicers. Among other operational requirements, all student loan servicers (regardless of license status) must: (1) maintain records; (2) file a report with the DOBI annually, setting forth information concerning business conducted in the previous calendar year; and (3) comply with all DOBI investigations and examinations.
The Bulletin notes that the Commissioner of the DOBI may suspend, revoke, or refuse to review the license of licensees who violate the Act. Further, the Commissioner is empowered to bring a civil action against any person who violates the Act, and may seek a monetary penalty of note more than $10,000 for the first violation, and $20,000 for the second and each subsequent offense.
The Act also created a private right of action for borrowers who suffer ascertainable loss of money as a result of the use or employment by a student loan servicer of any method, act, or practice declared unlawful under the Act. Borrowers are eligible for terrible damages as well as attorney’s fees, filing fees, and reasonable costs of suit.
Takeaway:
Those currently servicing student loans in New Jersey should be prepared to submit a license application when the license application becomes active on September 15, 2020. All those currently engaged in student loan servicing in New Jersey must apply by December 31, 2020, or risk engaging in unlicensed activity after that date. Applicants should ensure that if they are servicing FCSLs that they apply for both license types.
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