What does the legislation say?
On April 1, 2019, as part of the FY 2020 Enacted Budget, New York enacted Article 14-A, governing servicers of student loans held by New York residents. The legislation provides sweeping new protections for student loan borrowers, requiring certain servicers to obtain a state license and meet standards consistent with the laws and regulations governing other significant lending products, such as mortgages. The legislation takes effect on October 9, 2019.
The legislation is intended to ensure that no student loan servicer can mislead a borrower or engage in any predatory act or practice, misapply payments, provide credit reporting agencies with inaccurate information or engage in other practices that may harm the borrower. It requires certain servicers to obtain licensure from the New York Department of Financial Services (DFS), and subjects all servicers to regular examinations by DFS to ensure they meet standards consistent with the laws and regulations governing other significant lending products.
Is my school exempt?
There are some types of organizations that are exempt from licensing. Servicers of federal student loans are automatically deemed as licensed under the new law to service federal loans. A servicer that services both federal and non-federal student loans is required to obtain licensure. Banking organizations, foreign banking corporations, national banks, federal savings associations, federal credit unions, certain banks and other financial institutions organized under the laws of states other than New York are exempt.
Private nonprofit and public post-secondary educational institutions are exempt from licensure requirements and certain other requirements of the new legislation. Private post-secondary and for-profit schools are not exempt, and must either be licensed, or work with a servicer (such as TFC) that is licensed.
In addition, even servicers that are exempt from licensure or are deemed as already licensed are required to provide notice of their loan servicing to DFS and to comply with some provisions of the law, including those pertaining to non-conforming payments, credit reporting, prohibited practices, and record-keeping.
Prohibited practices enacted to protect students may include, but are not limited to, misapplying payments to the outstanding balance of any student loan, related interest, or fees; providing inaccurate information to a consumer reporting agency; refusing to communicate with a borrower’s authorized representative; misrepresenting or omitting any material information including the terms and conditions of the loan or the borrower’s obligations thereunder; defrauding or misleading a borrower; and failing to respond within fifteen days to communications from the department.
Entities that believe they are exempt from the legislation should notify DFS by email at SLSLicensing@dfs.ny.gov. The notification should include a detailed description of why the entity believes it is exempt.
What are the penalties for noncompliance?
Failure to comply with the law subjects servicers to the risk of hefty penalties and litigation. For each violation, a servicer may be required to pay the state a sum not to exceed the greater of $2,000 or twice the economic gain attributable to the violation for non-willful violations and, for willful violations, a sum not to exceed $10,000 or twice the economic gain attributable to the violation. These penalties are in addition to any liability or penalties available under other state or federal law.
I’m not sure what to do about licensing. How do I find out more information?
If your school offers in-house payment plans or institutional loans to students you may be at risk of noncompliance. TFC Tuition Financing can help your school maintain compliance. Contact TFC today to find out how we can help your school avoid noncompliance and hefty fines. To read the actual regulation (Article 14-A), click here. To view the entire FY 2020 Budget, click here.
