Final regulations adopted by the New York Department of Financial Services (NYDFS) to implement the state’s new student loan servicing law became effective on October 16, 2019 upon the publication by the NYDFS of a Notice of Adoption in the State Register. The new law, known as Article 14-A, was enacted on April 1, 2019. In addition to imposing new licensing requirements, even servicers that are exempt from licensing or deemed licensed must provide notice of their loan servicing to the NYDFS and comply with certain provisions of the law, including those pertaining to nonconforming payments, credit reporting, prohibited practices, and recordkeeping.
The NYDFS rejected most of the suggestions for changes to its proposed regulations made by commentators. That included rejecting a request for a delayed effective date, an entirely reasonable request, given that that the proposed regulations significantly expanded on various statutory requirements, given that further changes from the proposed regulations were made in the final regulations, as noted below, and given that the final regulations were ultimately issued a week after Article 14-A became effective.
Provisions that were changed in the final regulations include:
- Definition of “servicing.” The proposal provided that “servicing” did not include collecting, or attempting to collect, on a defaulted student loan for which no payment has been received for 270 days or more. The final regulations provides that “servicing” does not include collecting, or attempting to collect, on “a Direct Loan or FFELP Loan for which no payment has been received for more than 270 days or more, a Perkins Loan in default, or on a private student loan in default according to the terms of the loan documents.” (A corresponding change was made to the definition of a “debt collector” in the final regulations.)
- Definition of “student loan.” The proposal defined a “student loan” as “any loan to a borrower to finance postsecondary education or expenses related to postsecondary education.” The final regulations define a “student loan” as “any loan to a borrower to finance postsecondary education or expenses related to postsecondary education. The term shall not include an extension of credit under an open-end consumer credit plan, a reverse mortgage transaction, or any other loan that is secured by real property or a dwelling.”
- Handling of nonconforming payments. The final regulations, unlike the proposal, require a servicer to give a borrower “not less than ten business days to provide instructions” as to how to apply a nonconforming payment.
- Annual notice of information on repayment options and forgiveness. The proposal required the annual notice to contain information or links to information regarding repayment and loan forgiveness options. The final regulations require the notice to also include information or links to information regarding discharge options.
- Hard copies. The final regulations include a requirement for a servicer to “adopt policies and procedures permitting borrowers to obtain hard copies of information required to be disclosed by the student loan servicer, with particular focus on meeting the needs of borrowers without access to the internet.”