One Wednesday, Virginia enacted a law that requires student loan servicers to be licensed.  While Virginia opened its “Office of the Qualified Education Loan Ombudsman” in 2019, efforts to require licensure of student loan servicers had previously failed.

Identical bills HB 10/SB 77 had been sent to Governor Northam’s desk on March 12, but were not signed.  Then, on April 11, the Governor sent an amended version back to the legislature.  By operation of Virginia’s Constitution, the bills became law on Wednesday when both chambers voted to concur in the Governor’s recommendations.

We’ll be publishing a more detailed summary, but there are a few points we wanted to highlight:

  • The law creates a private cause of action available to “[a]ny person who suffers damage as a result of the failure of a qualified education loan servicer to comply” with this law or with applicable federal student loan servicing laws and regulations.  Given the range of prohibited practices and affirmative requirements set forth in the law, as well as the authority of the State Corporation Commission (SCC) to adopt regulations, the potential scope of activities that could give rise to liability is apparently quite large.
  • Under the law, a license is required to “act as a qualified education loan servicer.”  The law defines “servicing” rather expansively, to include “interacting with a qualified education loan borrower” and maintaining account records, among other things.
  • There are exemptions from licensing for various types of financial institutions and financial institution subsidiaries, as well as non-profit institutions of higher education.
  • An exemption and automatic licensing procedure will be established for federal student loan servicers.

The law has an effective date of July 1, 2021, and the SCC can begin accepting license applications on or before March 1, 2021.  Licensure will be via NMLS.