Department of Financial Services' Proposed New Regulation Includes Detailed Standards to Address Longstanding Problems in the Student Loan Servicing Industry
Proposed Regulation Subject to 60 Day Public Comment Period, After Which DFS Will Review Comments and Issue Final Regulation
Student Loan Servicers Must Submit Licensing Applications Through the Nationwide Multistate Licensing System
Governor Andrew M. Cuomo today announced a new proposed regulation that will provide significant consumer protections for New York student loan borrowers. The regulation would require companies that service student loans held by New Yorkers to meet new standards which will address problems that have plagued the student loan servicing industry. The proposed regulation is subject to a 60-day comment period following publication in the State Register on July 31, 2019. The Department of Financial Services will then review all received comments and issue a final regulation.
"While the federal administration ignores the growing problem of student loan debt, New York is taking action to protect borrowers," Governor Cuomo said. "This measure will help curb unscrupulous practices of the student loan servicing industry and empower borrowers to make better informed choices about how to finance their education."
Under the proposed regulation, student loan servicers will be 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.
The proposed regulation announced today will also prohibit servicers from defrauding or misleading borrowers, engaging in any unfair, deceptive, abusive, or predatory act or practice, or misapplying borrowers' payments.
"We're committed to ensuring all New Yorkers have the opportunity to pursue an affordable, high-quality education," said Lieutenant Governor Kathy Hochul. "The student loan crisis is a real issue, and working to protect those who are the most financially vulnerable is always a top priority. This new regulation will provide increased protections to best serve the millions of student loan borrowers across the state."
Department of Financial Services Superintendent Linda Lacewell said, "New York's more than 2 million student loan borrowers, who are already bearing the enormous burden of debt, should not have to suffer abuse by student loan servicers after investing in their education. We look forward to protecting New York students, their families and their futures under this new regulatory regime."
Senator Kevin Thomas, Senate Chair of Consumer of Affairs Committee, said, "New Yorkers deserve a fair and equal opportunity to further their education. Throughout my career, I saw far too many students victimized by predatory lenders while trying to pursue a better life. The enactment of the student loan servicer law represents a major success in securing much-needed consumer protections for student loan borrowers."
Senator James Sanders Jr., Senate Chair of Banks Committee, said, "I fully support these proposed consumer loan protections which will help ensure that those wishing to take out a student loan in order to continue their education are not victimized in the process. It is unfortunate that some lenders put their own interests before that of the borrower, and it is important that we deter such unscrupulous practices."
Assembly Member Michael DenDekker, Assembly Chair of Consumer Affairs Committee, said, situation. "The student loan servicer industry has a troubling history of victimizing those who are simply trying to get an education. I applaud Governor Cuomo and DFS for leading the charge in securing strong regulation of the student loan servicer industry. New York now joins other leading progressive states in providing student borrowers with essential consumer protections."
Assembly Member Kenneth P. Zebrowski, Assembly Chair of Banks Committee, said, "Fraudulent and misleading tactics exacerbate an already crushing student debt problem. These new protections will ensure students are treated fairly and honestly."
Student loan servicers must submit their licensing applications through the Nationwide Multistate Licensing System (NMLS), a secure, web-based, nationwide licensing system. The licensing application will be live on the NMLS website on August 1, 2019.
For additional information on the licensing process, visit DFS' Student Loan Servicer Licensing Resources.
A copy of the proposed regulation can be found here.