Final Regulation Issued by Department of Financial Services Protects New York's 2.8 Million Student Borrowers from Abusive Practices in the Student Loan Servicer Industry
Governor Andrew M. Cuomo today announced the Department of Financial Services has issued a final regulation that will protect student loan borrowers from unscrupulous practices in the student loan servicing industry. The regulation, which goes into effect today, requires companies that service student loans held by New Yorkers to meet new standards addressing problems that have plagued the student loan servicing industry. DFS issued the final regulation after taking into consideration comments submitted during a 60-day comment period. This is the latest step in Governor Cuomo's historic commitment to protecting the approximately 2.8 million student loan borrowers in New York.
"New York is taking aggressive action to protect students who invest in their education and to hold unscrupulous lenders accountable for deceptive practices," Governor Cuomo said. "This new regulation will force student loan servicers to be more transparent when it comes to how they do business and in the process help ensure students and their families aren't misled when trying to pay for their higher education."
Under the final regulation, student loan servicers are required to:
- Provide clear and complete information concerning fees, payments due and terms and conditions of loans;
- Apply payments in borrowers' best interest, rather than in ways that maximize servicer fees;
- Inform borrowers of income-based repayment and loan forgiveness options;
- Maintain and provide to consumers a detailed history of their account;
- When a borrower's loan is transferred to a new servicer, ensure all necessary servicing information is transferred with the loan so the borrower's repayment is not disrupted;
- Provide accurate information to credit reporting agencies; and
- Provide timely and substantive responses to consumer complaints.
Department of Financial Services Superintendent Linda A. Lacewell said, "While the federal government strips away consumer protections, New York continues to step up for students. Our new and final regulation will protect New York's nearly 3 million student loan borrowers from predatory practices and demand clear information from student loan servicers to help borrowers make the best financial choices towards their future."
Senator Kevin Thomas, Senate Chair of Consumer of Affairs Committee, said, "As the student loan crisis continues to balloon, it is now more important than ever to ensure borrowers are protected. This regulation will help root out bad actors in the student loan servicers industry who prey on the most vulnerable."
Senator James Sanders Jr., Senate Chair of Banks Committee, said, "Again, New York delivers for student loan borrowers with this new final regulation. This is a warning to loan servicers who put their profits over people first and we will continue to help safeguard New Yorkers from predatory lending practices."
Assembly Member Kenneth P. Zebrowski, Assembly Chair of Banks Committee, said, "The student loan industry continues to thrive as a lucrative business at the expense of borrowers. These new protections will provide New York borrowers with an accurate representation of their repayment options that works in their favor and will ban deceptive practices by dishonest servicers."
Assembly Member Michael DenDekker, Assembly Chair of Consumer Affairs Committee, said, "Student loan borrowers expect to improve themselves and their lives through higher education, but are forced to take on the unexpected burden of high fees and unscrupulous practices from student loan servicers. This final regulation upholds consumer protections for borrowers and will help discourage and prevent fraudulent activities by lenders."
The final regulation announced today also prohibits servicers from defrauding or misleading borrowers, engaging in any unfair, deceptive, abusive or predatory act or practice or misapplying borrowers' payments.
A copy of the final regulation is available on the DFS website.