The Commonwealth of Massachusetts supports consumer protection efforts on student loans and increases controls on student loan service providers. Starting July 1, it will join a growing list of states requiring approval from parties servicing student loans.
Codified in Chapter 93L of the Massachusetts General Laws, the Student Loan Servicer Act (SLSA) of the Commonwealth was enacted as part of an overarching Act Enabling Partnerships for Growth that was passed earlier this year. It requires the approval of any party who (directly or indirectly):
- receives or requests a scheduled recurring payment from a borrower and then transfers those payments to the student loan owner or other third party as required under the requirements of the service loan document or contract;
- Maintains account records for a student loan and who communicates on behalf of the student loan owner with the borrower during these periods (such as a grace period) when no payment is required for the student loan; and or
- Interactions with a borrower, including activities, will help the borrower prevent default or facilitate the repayment and / or communication activities described above.
For the purposes of this licensing requirement, a “student loan” is broadly referred to as a loan that is primarily used to finance a student’s post-secondary education or other school-related expenses. Given the breadth of this definition, it is not limited to private or government student loans – it includes both. In addition, the Massachusetts SLSA’s goal is to provide consumer protection to “student loan borrowers,” a term that applies not only to Massachusetts residents who have received or agreed to repay such a loan, but also to Massachusetts residents who have agreed to participate in the repayment obligation. In short, the political goal here is to provide consumer protection for both Massachusetts borrowers and co-signers.
There are several exceptions to the SLSA licensing requirement. For one thing, custodians – banks and credit unions (including state and foreign banks and credit unions) and their wholly owned subsidiaries do not require authorization. Not for profit or public universities either.
In conjunction with these automatic exemptions, the Massachusetts SLSA requires that the Division of Banks issue an automatic and generally irrevocable “Federal Student Loan Administrator License” to parties who operate under a contract with the US Student Loan Secretariat Education. The term of the federal student loan servicer license coincides with the expiration or termination of the servicer’s contract with the education minister. Such a servicer is required by the SLSA to notify the Banking Department within 7 working days of the termination of such an agreement with the Minister of Education.
Massachusetts will manage licensing processing through the NMLS, which made the license application available on its state licensing portal. The license is renewed annually. Service providers are required to keep records of every student loan transaction performed for a period of at least 2 years after the loan is paid in full or assigned, whichever comes first.
Massachusetts has additional licensing programs that might apply to a student loan service provider. For example, the Commonwealth has long required debt collection agencies to be licensed and external loan service providers to register with the Division of Banks. The newly formed SLSA program exempts a licensed student loan administrator from the licensing / registration requirements that apply to debt collection agencies and third party loan administrators, so “double licensing” is not required. However, this exception only applies as long as the student loan administrator acts exclusively in this capacity and does not carry out any other activities that would trigger the authorization requirement for debt collection companies or the registration requirement for third-party loan administrators. Regardless of whether such additional licenses or registrations are required, if the Student Loan Administrator is involved in third party loan services or debt collection activities as part of his student loan support activities under the SLSA, he must comply with the applicable behavioral requirements for debt collection agencies and external credit service providers when they engage in such activities.
However, it is currently unclear which behavioral requirements will apply to student loan brokers. While the concession regime has been at least partially expanded, the behavior-regulating requirements are currently still “to be determined”. The SLSA requires this service provider to comply with all applicable federal laws and regulations relating to student loan servicing and authorizes the Banking Department to investigate suspected violations of these requirements. It also generally prohibits the service provider from engaging in unfair competitive practices, or engaging in unfair or misleading acts or practices, but does not further define what precise activities would increase to that level. Presumably, the country-specific servicing requirements for student loan service providers will be dealt with within the scope of the SLSA in the upcoming ordinances to implement the legal requirements. These regulations remain in the design process.
In addition to passing the SLSA, Massachusetts has also put in place two additional regulatory agencies – one within the Division of Banks and another within the Attorney General’s office that are worth mentioning. The first is the Consumer Assistance Unit, which is part of the Division’s Investigations and Enforcement unit. Its job is to answer questions and investigate complaints pertaining to licensees in the Division of Banks, which will soon include student loan service providers.
The second is a more focused student loan ombudsman within the attorney general’s office. According to the statutes, which authorize the establishment of the office, the ombudsman will, among other things, provide support in the settlement of borrower complaints, support of borrowers with repayment options and possibilities for loss prevention, settlement of billing and collection disputes. It is also responsible for reporting annually on its activities to the Massachusetts Legislature and the Means and Ways Committees and the Joint Financial Services Committee.
It is clear that the issue of student loan servicing in the United States is an increasing wave of regulation. Massachusetts, which has a long history of robust consumer protection, is the latest jurisdiction to intervene in this battle. Parties who service student loans must adhere to this licensing requirement as well as those that already exist in other countries – and at the same time have an ear for developments in other countries.
source https://collegeeducationnewsllc.com/massachusetts-about-to-join-the-ranks-of-states-licensing-student-loan-servicers-hudson-cook-llp/
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