On October 13, 2023, the California Department of Financial Innovation (DFPI) published final regulations implementing the Student Loan Servicing Act (“SLSA”) and the Student Loans: Borrower Rights Law. The final regulations are the culmination of two sets of proposed regulations from the DFPI, which we previously covered here. The final regulations become effective January 1, 2024. Along with the text of the final regulations, the DFPI issued a Final Statement of Reasons.
The DFPI notes in the Final Statement of Reasons that the final regulations “strike a balance between protecting California student loan borrowers and avoiding unnecessary compliance burden on servicers.”
The final regulation adds the following new requirements:
A person who does not require a license under the SLSA but is subject to the Student Loans: Borrower Rights law must make a non-licensee filing and provide an address at which the non-licensee receives certified or registered mail.
Licensees are required to maintain a current, aggregate report of “education financing products” that the licensee services. A licensee must produce the report within 10 days of a request by the Commissioner of the DFPI. The regulations set forth the required information the report must contain. The report must include: (1) borrower name; (2) education financing product account number; (3) number of education financing products serviced for each borrower; (4) education financing product types, using the name the product is most commonly called, such as, income share agreements or installment contracts; (5) date of execution; and (6) payoff amount.
Licensees must include additional information for income share agreements and installment loan agreements.
Servicing Records for Education Financing Products
The final regulations require student loan servicers to maintain books, records, and accounts at one or more its licensed locations, for “education financing products.” The final regulations define “educational financing products” to mean all private student loans, which are not traditional student loan. Required records include: all education financing contracts; disclosure statements sent to the borrower; complete loan history; qualified written requests; borrower instructions how to apply overpayments; and statements of account sent to the borrower.
Additional highlights of the final regulation include:
- No mandated cutoff time for receipt of payment. The proposal included a mandated cutoff time of 11:59 p.m. Pacific Standard Time for receipt of payments, regardless of the servicer’s location.
- Finalization of the expanded definition of “income share agreement” as proposed. The term “income share agreement” includes any percentage or amount that the student has agreed to pay from future income, regardless if that agreement is for expense related to tuition, fees, books, supplies, room & board, transportation, or miscellaneous personal expenses. As a reminder, the definition goes beyond the advancing of funds and includes any “covering crediting, deferring, or funding” the costs of the student’s education.
- Requiring servicers to acknowledge receipt of and respond to qualified written requests, in writing. The acknowledgement requirement was finalized as proposed and servicers must use the borrower’s preferred method of communication. Where there is no preferred method specified, servicers must send acknowledgements to the borrower’s last known mailing address on record and to all email addresses on record.
- Revised definitions to better align with the Truth in Lending Act (“TILA”) and the Higher Education Act. The term “education financing product” is amended to mean all private student loans which are not traditional student loans (this was previously defined as “all private loans”) to mirror the language in TILA. In addition, the final regulation amends the term “private student loan” to mean a private education loan (as defined by TILA). Lastly, the final regulations defines the term “federal student loan” as a loan made, insured or guaranteed under the Higher Education Act.