California DFPI Issues Licensing First …

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Student Loan Update: California DFPI Licens First Service Personnel Under Income Sharing Agreements

The California Department of Financial Protection and Innovation (DFPI) has signed an agreement with New York-based Meratas Inc., which partners with educational institutions and offers students income sharing agreements (ISAs) to fund postsecondary education and training. To news release from DFPI.

The agreement reflects the department’s decision to treat these private finance products as student loans for purposes of California Student Loan Service Act (SLSA), which was adopted in 2016.

“Today’s action shows that we are taking important steps to better protect student borrowers in California,” said DFPI Senior Deputy Commissioner Susanne Martindale, whose Consumer Financial Protection Division oversees the student loan service law. “Regulating revenue sharing agreements such as student loans levels the game and creates a fair market that protects all consumers.”

The agreement between DFPI and Meratas is considered the first of its kind to require ISA service to comply with government licensing and regulations. “ISA service regulation under SLSA better protects California students by ensuring that the company passes regular exams and communicates honestly and fairly with borrowers, among many other safeguards,” says DFPI.

ISA is increasingly being used by private for-profit companies offering postsecondary and non-profit training programs. Under ISA, students agree to pay the school a certain percentage of their future gross income after graduation, but only if they are employed and receive a salary in excess of the agreed salary.

Meratas applied for the license in April, which led to an agreement that DFPI would issue the company a conditional license under the SLSA.

For years, some ISA issuers have argued that state and federal lending laws do not apply to agreements, and students who fund tuition under agreements do not enjoy the same regulatory protections as other borrowers under the DFPI.

DFPI expects to clarify the requirements for ISA providers and service providers through future policy development.

In addition to regulating student loan services, DFPI licenses and regulates financial products and services, debt collectors, credit and consumer loan repair agencies, debt relief companies, and more.

California is applying for a debt collector license under the Debt Collection Licensing Act passed last year. License applications will be posted online via National multi-state licensing system and registry September 1. Applications must be submitted by December 31, 2021 and are required starting January 1, 2022. Previously reported on ACA International

Meanwhile, at the federal level, the US Department of Education (DOE) has released an update on the balance between federal and state oversight of serving student loans.

“New legal interpretation that revises and clarifies [the department’s] position on the legality of state laws and regulations that regulate various aspects of servicing federal student loans … will help states enforce borrower rights bills or other similar laws to address problems with servicing federal student loans, ”said Department of Energy press release

In July, the Conference of State Regulators and the Association of Regulators of the North American Collection Agency sent a letter to Education Secretary Miguel Cardone welcoming the Department of Energy’s recent moves towards recognizing government authority, but calling for further action to stop the lead over government regulation. ACA previously reported

According to the Department of Education, “the proposed notice clarifies that while federal law does discourage state regulation in certain narrow areas, states can regulate student loan servicing in many other ways, without anticipation from federal authorities. Higher Education Law (HEA) “.

The interpretative notice went into effect on August 12, but the department is also seeking public comment on this notice by September 13 so that it can identify any additional changes that may be required, as per the notice in Federal register

Federal student loan payments are currently on hold until January 31, 2022. The renewal was recently updated to move into the next year, and Department of Energy reports this is the final extension of the grace period.

Government regulators, who have called for the removal of the preemptive policy, said it was important to do so now to ensure that borrowers are protected once payments are resumed.

To post comments using Docket ID ED-2021-OS-0107:

  • Go to www.regulations.gov send your comments electronically. Usage Information Rules.gov, including instructions on accessing agency documents, submitting comments and viewing dossiers, are available on the website under FAQ
  • Postal mail, commercial delivery or manual delivery: If you are mailing or delivering comments on the interpretation, please address them to Beth Grebeldinger, US Department of Education, Federal Student Services, 830 First Street NE, Room 113F4, Washington DC 20202.

For more information on how ACA Licensing Staff can help complete your licensing application, contact us at licensing@acainternational.org or by phone (952) 926-6547.

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