Licensing requirements may affect collection agencies under certain circumstances.
On May 13, 2019, the governor of Colorado signed into law S.B. 19-002 which, among other things, creates a licensing requirement for student loan servicers. S.B. 19-002, the “Colorado Student Loan Servicers Act” (“Act”), took effect Aug. 2, 2019. The new law requires servicers, as that term is defined by the Act, of student loans owed by Colorado citizens to be licensed by Colorado’s Uniform Credit Code (UCCC) Administrator. According to the Colorado Department of Law, student loan servicers have until Jan. 31, 2020, to obtain a license in order to continue providing student loan services in the state of Colorado. The applications will not be available until November.
The Colorado law is yet another example of a state jumping on the bandwagon in support of regulating student loan servicers at the state level (which may conflict with federal law). The new law aims to promote meaningful access to federal affordable repayment and loan forgiveness benefits; reliable information about student loans and loan repayment options; quality customer service and fair treatment. Some of the ways in which the Act attempts to achieve these goals includes:
- Creating a student loan ombudsperson whose duties include, in part, receiving, reviewing and attempting to resolve complaints from student loan borrowers as well as analyzing and monitoring changes in federal and state laws and recommending any necessary changes.
- Requiring the servicer to respond to the borrower or ombudsperson within ten business days of a written inquiry and provide information relating to the request within thirty business days after the receipt of a request.
- Prohibiting servicers from defrauding or misleading borrowers, misapplying payments, providing inaccurate information to credit reporting agencies, and failing to assess a borrower for an income-based repayment plan if available.
- Making any violation of the law a misleading practice.
- Requiring servicers to keep records of student loan payments.
A collection agency that only collects on defaulted student loans is exempt from the Act. However, a collection agency that collects on both current and defaulted loans must obtain a license from the state and is subject to the provisions and penalties found in the Act. The new law tracks the Higher Education Act of 1965, as amended, and considers a federal loan in default if no payment has been made for 270 days or more. However, a private student loan is deemed to be in default by the terms of the loan.