California Enacts Student Loan Servicer Licensing Requirement
10/31/2016 8:00 AM
A.B. 2251, the Student Loan Servicing Act, requires servicers of student loans to obtain a license.
California recently enacted the Student Loan Servicing Act (Cal. A.B. 2251), which will require student loan servicers located in California servicing loans made to residents of any state, and servicers located outside of California servicing loans made to California residents, to obtain a license from the Commissioner of Business Oversight. Under the Act, “servicing” is defined broadly and “means any of the following activities related to a student loan of a borrower:
(1) Performing both of the following:
(A) Receiving any scheduled periodic payments from a borrower or any notification that a borrower made a scheduled periodic payment.
(B) Applying payments to the borrower’s account pursuant to the terms of the student loan or the contract governing the servicing.
(2) During a period when no payment is required on a student loan, performing both of the following:
(A) Maintaining account records for the student loan.
(B) Communicating with the borrower regarding the student loan on behalf of the owner of the student loan promissory note.
(3) Interacting with a borrower related to that borrower’s student loan, with the goal of helping the borrower avoid default on his or her student loan or facilitating the activities described in paragraph (1) or (2).”
The Act’s requirements become effective July 1, 2018, but the Commissioner can begin to take necessary actions to prepare for the changes on Jan. 1, 2017. In addition to a license requirement, the Act also sets forth additional requirements for servicing student loans, including, but not limited to, a $25,000 bond, informational disclosures which must be listed on the servicer’s website, restrictions on furnishing adverse information to a consumer reporting agency, requirements for handling consumer disputes, and certain prohibited practices. For more information and to review the full requirements of the Act, members can review the Student Loan Servicing Act.
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