Student Loan Update: California DFPI Issues License to First Income Share Agreements Servicer


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The license was issued under the parameters of the 2016 California Student Loan Servicing Act.

8/13/2021 10:00

The California Department of Financial Protection and Innovation (DFPI) has signed an agreement with New York-based Meratas Inc., a company that partners with educational institutions to offer students income share agreements (ISAs) to finance post-secondary education and training, according to a news release from the DFPI.

The agreement reflects the department’s decision to treat these private financing products as student loans for the purpose of the California Student Loan Servicing Act (SLSA), which was passed in 2016.

“Today’s action shows we are taking significant steps to better protect California student borrowers,” said DFPI Senior Deputy Commissioner Suzanne Martindale, whose Consumer Financial Protection Division oversees the student loan servicing law. “Regulating income share agreements like student loans levels the playing field and creates a fair marketplace that protects all consumers.”

The agreement between DFPI and Meratas is believed to be the first of its kind to require an ISA servicer to follow state licensing and regulation. “Regulating an ISA servicer under the SLSA better protects California students by ensuring the company submits to regular examinations and communicates honestly and fairly with borrowers, amongst many other protections,” the DFPI reports.

ISAs are increasingly used by private, for-profit companies offering post-secondary education and nonprofit training programs. Under an ISA, students agree to repay a school a set percentage of their future gross income after graduation, but only if they are employed and making more than an agreed-upon salary.

Meratas applied for a license in April, which led to an agreement that the DFPI will issue the company a conditional license under the SLSA.

For years, some ISA issuers have contended that state and federal lending laws do not apply to the agreements, and students who finance education under the agreements did not enjoy the same regulatory protections as other borrowers, according to the DFPI.

The DFPI expects to clarify requirements for ISA providers and servicers through future rulemaking.

In addition to regulating student loan servicers, the DFPI licenses and regulates financial products and services, debt collectors, credit repair and consumer credit reporting agencies, debt-relief companies and more.

Debt collector license applications are new to California under the Debt Collection Licensing Act passed last year. The license applications will be online through the Nationwide Multistate Licensing System & Registry Sept. 1. Applications will be due by Dec. 31, 2021, and required starting Jan. 1, 2022, ACA International previously reported.

Meanwhile, at the federal level, the U.S. Department of Education (DOE) has released updated information on the balance between federal and state oversight of student loan servicers.

“A new legal interpretation that revises and clarifies [the department’s] position on the legality of state laws and regulations that govern various aspects of the servicing of federal student loans … will help states enforce borrower bills of rights or other similar laws to address issues with servicing of federal student loans,” according to a news release from the DOE.

In July, the Conference of State Bank Supervisors and North American Collection Agency Regulatory Association issued a letter to Education Secretary Miguel Cardona applauding recent steps by the DOE toward recognizing state authority but calling for more action to stop preemption over state regulation, ACA previously reported.

According to the DOE, “the proposed notice clarifies that while federal law does preempt state regulation in certain narrow areas, states can regulate student loan servicing in many other ways without being preempted by the federal Higher Education Act (HEA).”

The interpretation notice took effect Aug. 12, but the department is also seeking public comment on the notice until Sept. 13 so it can identify any additional changes that may be needed, according to a notice in the Federal Register.

Federal student loan payments are currently on hold through Jan. 31, 2022. The extension was recently updated to go into next year and the DOE reports it is the final extension of the payment forbearance.

The state regulators who called for rescinding the preemption policy said it is important to do it now to ensure borrower protections once the payments resume.

To file comments using Docket ID ED-2021-OS-0107:

  • Go to www.regulations.gov to submit your comments electronically. Information on using Regulations.gov, including instructions for accessing agency documents, submitting comments and viewing the docket, is available on the site under the FAQ.
  • Postal Mail, Commercial Delivery or Hand Delivery: If you mail or deliver your comments about the interpretation, address them to Beth Grebeldinger, U.S. Department of Education, Federal Student Aid, 830 First Street NE, Room 113F4, Washington, D.C. 20202.

For more information on how the ACA licensing staff can assist with your licensing application completion needs, please contact us at licensing@acainternational.org or call (952) 926-6547.