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  • DFPI proposal would consider ISAs as student loans

    State Issues

    On September 9, the California Department of Financial Protection and Innovation (DFPI) issued a notice of proposed rulemaking to adopt new regulations and amend current regulations implementing the Student Loan Servicing Act (Act), which provides for the licensure, regulation, and oversight of student loan servicers by DFPI (formerly the Department of Business Oversight) (previously covered by InfoBytes here). The proposed rulemaking also outlines new clarifications to the Student Loans: Borrower Rights Law, which was enacted in 2020 (effective January 1, 2021) to provide new requirements for student loan servicers (previously covered by InfoBytes here).

    In its initial statement of reasons for the new regulations, DFPI noted that since the Act took effect five years ago, additional private student loan financing products have emerged, such as income share agreements and installment contracts, which use terminology and documentation distinct from traditional loans. DFPI commented that while lenders and servicers of these products have asserted that their products do not fall within the definition of a student loan and are not subject to the statute’s requirements, these education financing products serve the same purpose as traditional loans—“help pay the cost of a student’s higher education"—and are therefore student loans subject to the Act, and servicers of these products must be licensed and comply with all applicable laws. The proposed rulemaking, among other things, (i) defines the term “education financing products,” which now fall under the purview of the Act, along with other related terms; (ii) amends various license application requirements, including amended financial requirements for startup applicants; (iii) outlines provisions related to non-licensee (e.g., servicers that do not require a license but that are subject to the Student Loans: Borrower Rights Law) filing requirements; and (iv) specifies that servicers of all education financing products must submit annual aggregate student loan servicing reports to DFPI. The proposed rulemaking also removes certain unnecessary requirements based on DFPI’s experience in administering the Act to reduce the regulatory burden.

    Comments on the notice of proposed rulemaking are due October 28.

    State Issues State Regulators DFPI Student Lending Licensing Student Loan Servicer Consumer Finance California Student Loan Servicing Act

  • 2nd Circuit upholds public service loan relief settlement

    Courts

    On September 7, the U.S. Court of Appeals for the Second Circuit affirmed a class action settlement reached between a student loan servicer and borrowers who claimed the servicer failed to inform them of a loan forgiveness program for public service employees. As previously covered by InfoBytes, the settlement required the servicer—who denied any allegations of wrongful conduct and damages—to put in place enhancements to identify borrowers who may qualify for Public Service Loan Forgiveness (PSLF) and “distribute comprehensive and accurate information about how to qualify, which are meaningful business practice enhancements.” The servicer was also required to fund a $2.25 million non-profit program to provide counseling to borrowers at all stages of the repayment process. The settlement also approved service awards for the named plaintiffs. In affirming the settlement, the appellate court rejected arguments raised by objectors who claimed, among other things, that the cy pres award would not benefit the class and “that the settlement improperly released monetary claims.”

    “The cy pres award funds Public Service Promise and thereby assists all class members in navigating PSLF and determining whether they have a viable individual monetary claim against [the servicer],” the panel wrote, acknowledging that other circuit courts have recognized that class members can indirectly benefit from defendants paying appropriate third parties. “[T]he reforms will also benefit the remaining class members who, for example, are no longer with [the servicer] or who no longer have student loans, by providing them accurate information about the PSLF and helping them determine whether they have viable individual claims for damages,” the 2nd Circuit said.

    Courts Appellate Second Circuit Student Lending PSLF Class Action Settlement Student Loan Servicer

  • California broadens DFPI commissioner’s enforcement authority

    State Issues

    On August 26, the California governor signed AB 2433, which broadens DFPI’s unlawful practices oversight and enforcement power over any person currently engaging in or having engaged in the past, in unlicensed activity. Among other things, the bill amends the DFPI commissioner’s enforcement of various laws, such as the California Commodity Law, Escrow Law, California Financing Law (CFL), Property Assessed Clean Energy (PACE), Student Loan Servicing Act, and California Residential Mortgage Lending Act. The bill establishes that the commissioner may act “upon having reasonable grounds to believe that a broker-dealer or investment advisor has conducted business in an unsafe or injurious manner.” The bill also permits the DFPI to “act upon having cause to believe that a licensee or other person has violated the CFL.” The CFL provides for the licensure and regulation of finance lenders, brokers, and specified program administrators by the Commissioner of Financial Protection and Innovation to issue a citation to the licensee or person and to assess an administrative fine, as specified, among other things. The CFL also regulates certain persons acting under the PACE program, including PACE solicitors and PACE solicitor agents. The new bill establishes that “if the commissioner, upon inspection, examination, or investigation, has cause to believe that a PACE solicitor or PACE solicitor agent is violating any provision of that law, or rule or order thereunder, the commissioner or their designee is required to exhaust a specified procedure before bringing an action.” Additionally, bill specifies that certain “procedures apply when the commissioner has cause to believe that a PACE solicitor or solicitor agent has violated any provision of that law or rule or order thereunder.” The bill also mentions the Student Loan Servicing Act, which “provides for the licensure, regulation, and oversight of student loan servicers by the commissioner,” and establishes that the commissioner is required, upon having reasonable grounds after investigation to believe that a licensee is conducting business in an unsafe or injurious manner, to direct, by written order, the discontinuance of the unsafe or injurious practices. This bill specifies “that these procedures also apply if, after investigation, the commissioner has reasonable grounds to believe that a licensee has conducted business in an unsafe or injurious manner.” The bill is effective immediately.

    State Issues State Legislation California Student Lending Student Loan Servicer PACE Licensing Mortgages Enforcement State Regulators

  • Oregon approves final student loan servicer regulations

    Recently, the Oregon Department of Consumer and Business Services, Division of Finance and Securities Regulation (the Department), filed agency-approved student loan servicer licensing regulations with the Oregon Office of the Secretary of State. The regulations implement SB 485 (enacted last July and covered by InfoBytes here), which established provisions for student loan servicers related in part to licensing requirements, including the requirement that an applicant for a student loan servicer license should submit applications via the Nationwide Multistate Licensing System (NMLS).The act also implemented related consumer protections for borrowers.

    The new regulations establish specific application requirements, including provisions related to subcontractors performing servicing activities on behalf of the student loan servicer. The regulations also provide for automatic licensure for applicants that service student loans under a contract with the Department of Education. Additionally, the regulations address (i) procedures for licensing branch locations; (ii) licensing renewals and fees; (iii) liquidity standards; (iv) bond requirements; (v) various annual reporting requirements; (vi) assessment payments and examination fees; (vii) rules for using an assumed business name; (viii) financial responsibility criteria; (ix) student loan servicer duties and responsibilities in addition to prohibited acts; and (x) licensing exemptions. The regulations also establish the Department director’s supervisory authority and outline disclosure requirements for significant developments or changes to a licensee’s record. The regulations became effective July 1.

    Licensing State Issues Oregon Student Lending Student Loan Servicer NMLS

  • NYDFS releases best practices for promoting PSLF program and time-limited waiver

    State Issues

    On July 13, NYDFS called on all federal student loan servicers to increase awareness of and enroll borrowers in public service loan forgiveness programs before a temporary waiver expires on October 31. NYDFS’s letter reminded servicers that under the Public Service Loan Forgiveness (PSLF) program, full-time government and certain non-profit employees may be eligible to have federal direct loans forgiven after making 120 qualifying monthly payments. Last October, the Department of Education announced temporary PSLF changes due to the Covid-19 pandemic. These changes provided qualifying borrowers a time-limited PSLF waiver, which allows all payments to count towards PSLF regardless of loan program or payment plan (covered by InfoBytes here). Expressing concerns that many borrowers may not learn of this opportunity before it expires in October, NYDFS encouraged servicers to adopt eight best practices to promote awareness of the PSLF Program and the waiver. These include “enhanced trainings for customer service staff, proactive communications with borrowers, and increased promotion of the PSLF program on servicer websites and on borrower account pages,” NYDFS said in its announcement.

    The letter follows a December 2021 NYDFS request sent to federal student loan servicers asking for updates on steps taken to address the waived rules. NYDFS also reminded servicers that it “will diligently enforce all servicer legal requirements concerning the PSLF program and will consider the extent to which servicers engaged in proactive measures to promote the PSLF Waiver in future supervisory examinations.”

    State Issues New York State Regulators NYDFS Student Lending PSLF Covid-19 Consumer Finance Department of Education Student Loan Servicer

  • Louisiana enacts student loan servicer provisions, establishes requirements for private education lenders

    On June 18, the Louisiana governor signed HB 610, which defines terms and outlines provisions related to student loan servicers. Among other things, the act prohibits servicers from misleading student loan borrowers or engaging in any unfair, abusive, or deceptive trade practice. Servicers are also prohibited from making misrepresentations or omitting information related to fees, payments, repayment options, loan terms and conditions, or borrower obligations. Moreover, servicers may not “[a]llocate a nonconforming payment in a manner other than as directed by the student loan borrower” under certain circumstances. The act also outlines duties related the furnishing of information to consumer reporting agencies, providing that a servicer may not (i) submit inaccurate information to a consumer reporting agency; (ii) refuse to correct inaccurately furnished information; (iii) fail to report a borrower’s favorable payment history at least once a year; (iv) refuse to communicate with a borrower’s authorized representative; and (v) make false statements or omit material facts connected to a state or local agency investigation. Additionally, the act specifies responsibilities related to responding to written inquires and complaints from consumers.

    The same day, the governor also signed HB 789, which establishes a private student loan registry and outlines provisions related to private education lenders. The act stipulates that all private education lenders operating in the state must register with the commissioner, which may include the payment of fees and registration through the Nationwide Multistate Licensing System and Registry. However, the act allows the commissioner to prescribe an alternative registration process and fee structure for postsecondary education providers. These registration requirements are not applicable to banks, savings banks, savings and loan associations, or credit unions operating pursuant to authority granted by the commissioner. Private education lenders will also be required to comply with certain reporting requirements, including providing information related to the schools where the lender has made loans to students residing in the state, the total number and dollar amount of loans made annually, interest rate ranges, borrower default rates, copies of promissory notes and contracts, and cosigner loan statistics, among others.

    Both acts take effect August 1.

    Licensing State Issues State Legislation Louisiana Student Lending Student Loan Servicer Consumer Finance NMLS UDAP

  • CFPB exposes private loan servicers’ unfair practices

    Federal Issues

    On May 5, the CFPB discussed examination findings related to private student loan servicers’ alleged failure to follow through with promised loan offers or modifications. The Bureau directed servicers found to have breached their commitments to make “significant remediation amounts” for failing to make promised payments to customers. The Bureau found some servicers offered financial incentives to recruit new customers, but then failed to make the promised payments. In certain instances, servicers’ systems failed to identify customers who earned incentives, and in others, payments were denied based on terms that were not included in the original deal, the Bureau claimed. The Bureau also found that while many servicers offered payment relief options to pause or reduce payments to customers impacted by the Covid-19 pandemic, at least one servicer failed to deliver promised refunds to customers who modified their agreements to allow them to backdate forbearance after making a payment. The Bureau documented two examples of servicers committing unfair acts or practices in this space in its recent spring Supervisory Highlights (covered by InfoBytes here) and warned servicers that it is “closely monitoring” companies that break the law.

    Federal Issues CFPB Examination Student Lending Student Loan Servicer Covid-19 Unfair UDAAP Consumer Finance

  • CFPB issues spring supervisory highlights

    Federal Issues

    On May 2, the CFPB released its spring 2022 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, prepaid accounts, remittances, and student loan servicing. The report’s findings cover examinations completed between July and December 2021. Highlights of the examination findings include:

    • Auto Servicing. Bureau examiners identified instances of servicers engaging in unfair, deceptive, or abusive acts or practices connected to wrongful repossessions, misleading final loan payment amounts, and overcharges for add-on products.
    • Consumer Reporting. The Bureau found deficiencies in credit reporting companies’ (CRCs) compliance with FCRA dispute investigation requirements and furnishers’ compliance with FCRA and Regulation V accuracy and dispute investigation requirements. Examples include (i) both CRCs and furnishers failed to provide written notice to consumers providing the results of reinvestigations and direct dispute investigations; (ii) furnishers failed to send updated information to CRCs following a determination that the information reported was not complete or accurate; and (iii) furnishers’ policies and procedures contained deficiencies related to the accuracy and integrity of furnished information.
    • Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) reimburse consumers after determining a billing error had occurred; (iii) conduct reasonable investigations into billing error notices due to human errors and system weaknesses; and (iv) provide consumers with the evidence relied upon to determine a billing error had not occurred. Examiners also identified Regulation Z violations connected to creditors’ acquisitions of pre-existing credit card accounts from other creditors, and identified deceptive acts or practices related to credit card issuers’ advertising practices.
    • Debt Collection. The Bureau found instances of FDCPA and CFPA violations where debt collectors used false or misleading representations in connection with identity theft debt collection. Report findings also discussed instances where debt collectors engaged in unfair practices by failing to timely refund overpayments or credit balances.
    • Deposits. The Bureau discussed violations related to Regulation E, which implements the EFTA, including occurrences where institutions (i) placed duplicate holds on certain mobile check deposits that were deemed suspicious instead of a single hold as intended; (ii) failed to honor a timely stop payment request; (iii) failed to complete error investigations following a consumer’s notice of error because the consumer did not submit an affidavit; and (iv) failed to provide consumers with notices of revocation of provisional credit connected with error investigations regarding check deposits at ATMs.
    • Mortgage Origination. Bureau examiners identified Regulation Z violations concerning occurrences where loan originators were compensated differently based on the terms of the transaction. Under the Bureau’s 2013 Loan Originator Final Rule, “it is not permissible to differentiate compensation based on credit product type, since products are simply a bundle of particular terms.” Examiners also found that certain lenders failed to retain sufficient documentation to establish the validity for revisions made to credit terms.
    • Prepaid Accounts. The Bureau found violations of Regulation E and EFTA related to institutions’ failure to submit prepaid account agreements to the Bureau within the required time frame. Examiners also identified instances where institutions failed to honor oral stop payment requests related to payments originating through certain bill pay systems. The report cited additional findings where institutions failed to properly conduct error investigations.
    • Remittances. Bureau examiners identified violations of the EFTA, Regulation E, and deceptive acts and practices. Remittance transfer providers allegedly made false and misleading representations concerning the speed of transfers, and in multiple instances, entered into service agreements with consumers that violated the “prohibition on waivers of rights conferred or causes of action created by EFTA.” Examiners also identified several issues related to the Remittance Rule’s disclosure, timing, and recordkeeping requirements.
    • Student Loan Servicing. Bureau examiners identified several unfair acts or practices connected to private student loan servicing, including that servicers failed to make advertised incentive payments (which caused consumers to not receive payments to which they were entitled), and failed to issue timely refund payments in accordance with loan modification payment schedules.

    The report also highlights recent supervisory program developments and enforcement actions, including the Bureau’s recent decision to invoke a dormant authority to examine nonbanks (covered by InfoBytes here).

    Federal Issues CFPB Supervision Examination UDAAP Auto Lending CFPA Consumer Finance Consumer Reporting Credit Report FCRA Regulation V Credit Furnishing Credit Cards Regulation Z Regulation E EFTA Debt Collection Mortgages Deposits Prepaid Accounts Remittance Student Loan Servicer

  • New York AG settles with student loan servicer for alleged PSLF and IDR failures

    State Issues

    On April 27, the New York attorney general announced a settlement with a national student loan servicer, resolving allegations that it failed to properly manage student loans and administer the Public Service Loan Forgiveness (PSLF) program by inaccurately counting loan payments, improperly denying applications, and not processing applications in a timely manner. As previously covered by InfoBytes, the New York AG filed a complaint against the defendant in 2019 alleging violations of the CFPA and New York law, whereby the defendant, among other things, (i) failed to accurately count borrower’s PSLF-qualifying payments; (ii) failed to provide timely explanations to borrowers for PSLF payment count determinations; (iii) failed to process income driven repayment (IDR) plan paperwork accurately and timely; and (iv) lacked clear policies and procedures for addressing errors, resulting in inconsistent treatment of borrowers.

    Under the terms of the settlement, the defendant is required to automatically review nearly 10,000 accounts of New York borrowers for various potential errors, including incorrect information provided about PSLF or IDR eligibility and inaccurate monthly payment charges, among other things. In addition, more than 300,000 current New York residents may be eligible to have their accounts reviewed at no cost to them. The defendant is required to send out notices to borrowers within 30 days. Borrower relief may include crediting of undercounted payments, refunds of overpayments, interest, monetary payments, and modifications to past payments to designate them as PSLF-qualifying. The defendant will implement enhanced quality assurance review procedures designed to identify errors.

    State Issues State Attorney General New York CFPA Student Lending Student Loan Servicer

  • Education Dept. rolls out new plan for IDRs

    Agency Rule-Making & Guidance

    On April 19, the Department of Education announced additional changes to the federal student loan program designed to reduce or eliminate federal student loan debt for many borrowers. In particular:

    • To address long-term forbearance steering, Federal Student Aid (FSA) will conduct “a one-time account adjustment that will count forbearances of more than 12 months consecutive and more than 36 months cumulative toward forgiveness” under the income-driven repayment (IDR) and Public Service Loan Forgiveness (PSLF) programs.
    • Borrowers “steered” into shorter-term forbearances may file a complaint with the FSA Ombudsman to seek an account review.
    • FSA will also partner with the CFPB to conduct regular audits of servicers’ forbearance use, and will seek to improve oversight of loan servicing activities.
    • Loan servicers’ ability to enroll borrowers in forbearance by text or email will be restricted.
    • FSA will conduct a one-time revision of IDR-qualifying payments for all Direct Student Loans and federally-managed Federal Family Education Loan Program (FFEL) loans, and will count any month in which a borrower made a payment toward IDR, regardless of the payment plan. Borrowers who meet the required number of payments for IDR forgiveness based on the one-time revision will receive automatic loan cancellation. Moreover, months spent in deferment prior to 2013 will count towards IRD forgiveness (with the exception of in-school deferment) to address certain data reliability issues.

    In addition, FSA plans to reform its IDR tracking process. New guidance will be issued to student loan servicers to ensure accurate and uniform payment counting practices. FSA will also track payment counts on its own systems and will display IDR payment counts on StudentAid.gov beginning in 2023 so borrowers can monitor their progress. The Department also plans to issue rulemaking that will revise the terms of IDR and “further simplify payment counting by allowing more loan statuses to count toward IDR forgiveness, including certain types of deferments and forbearances.”

    Agency Rule-Making & Guidance Department of Education CFPB Student Lending Consumer Finance Debt Cancellation Forbearance Student Loan Servicer Income-Driven Repayment

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