The Commonwealth of Massachusetts assists efforts to protect student loan consumers and strengthens controls applied to those who serve them. Effective July 1, it will join a growing list of states requiring licensing of parties serving student loans.
Coded in Chapter 93L of the Massachusetts General Laws, the State Student Loan Act (SLSA) was passed as part of the comprehensive Partnerships for Growth Act, which was completed earlier this year. This requires a license from any party that (directly or indirectly):
- Receives or requests scheduled recurring payments from the borrower and then transfers such payments to the student loan holder or other third party as required by the loan service document or contract;
- Maintains records for the student loan and communicates on behalf of the student loan holder with the borrower during periods (for example, the abstinence period) when no student loan payment is required; and / or
- Interact with the borrower, including actions that help the borrower prevent default or facilitate the repayment and / or communication actions described above.
For the purposes of this licensing requirement, “student loan” is broadly defined as any loan that is primarily used to fund a student’s post-secondary education or other school-related expenses. Given the breadth of this definition, it is not limited to either private or federal student loans – it includes both. Moreover, the goal of the Massachusetts SLSA is to provide consumer protection to the “student loan borrower,” a term defined to refer not only to a Massachusetts resident who has received or agreed to repay such a loan, but also a Massachusetts resident who has agreed to share the responsibility for repayment. In short, the policy goal here is to provide consumer protection to both Massachusetts borrowers and others.
There are a few exceptions to the SLSA licensing requirements. First, depository institutions – banks and credit unions (including federal and out-of-state banks and credit unions) and their wholly owned subsidiaries do not need to be licensed. As well as non-profit or government institutions of higher education.
Along with these automatic exemptions, the Massachusetts SLSA encourages the Department of Banks to issue an automatic and generally irrevocable “federal student loan service license” to parties that act as student loan servicers under contract with the US Secretary. Education. The term of the license to serve federal student loans coincides with the expiration or termination of the service staff’s contract with the Secretary of Education. The SLSA requires such service personnel to give notice to the Bank Branch within 7 business days after the termination of such agreement with the Minister of Education.
Massachusetts will administer the licensing process through the NMLS, making license application available on the government licensing portal. The license will be renewed annually. Service staff must keep a record of every student loan transaction serviced for a minimum of 2 years after the loan has been paid in full or assigned, whichever comes first.
Massachusetts has additional licensing schemes that may apply to student loan attendants. For example, the Commonwealth of Nations has long required debt collectors to be licensed and third-party loan servicing organizations to register with a bank branch. The new SLSA scheme will free licensed student loan service personnel from the licensing / registration requirements applicable to debt collectors and third-party lending institutions, so “dual licensing” is not required. However, this exemption will only apply as long as the student loan servicer acts solely in that capacity and does not otherwise engage in activities that could trigger the debt collector’s licensing or third party credit institution registration requirements. Regardless of whether such additional licenses or registrations are required, if the student loan service provider engages in third party loan servicing or debt collection as part of its student loan service activities as specified in the SLSA, it must comply with the applicable behavioral requirements. debt collectors and third party lenders when they engage in such activities.
However, it is currently unclear what conduct requirements will apply to those serving student loans. Although the licensing regime is at least partially formed, the requirements governing behavior are “still to be determined” at this time. The SLSA requires these service personnel to comply with all applicable federal laws and regulations governing student loan servicing and empowers the Banking Branch to investigate any alleged violations of such requirements. It also generally prohibits service personnel from engaging in any unfair competition practices or any dishonest or deceptive action or method, but it does not provide any further definition of which activities may rise to that level. It is anticipated that the state-specific service requirements applicable to SLSA-servicers of student loans will be addressed in future bylaws to comply with legal requirements. These rules remain under development.
In addition to the adoption of the SLSA, Massachusetts has also established two additional regulatory bodies – one within the Banking Branch and the other within the Attorney General’s Office, which are worth mentioning. The first is the Consumer Assistance Unit, which is part of the Investigation and Enforcement Division. He is tasked with answering questions and investigating complaints with the licensees of the Bank Branch, which will soon include staff serving student loans.
The second is a more focused student loan ombudsman in the Attorney General’s Office. Under the statute authorizing the establishment of the office, the Ombudsman will assist in resolving borrower complaints, assisting borrowers with repayment options and loss prevention options, resolving billing and debt collection disputes among other services. He is also tasked with compiling annual reports on his activities to the Massachusetts Legislature and Ways and Means Committees, as well as the Joint Committee on Financial Services.
Clearly, the issue of servicing student loans is a growing wave of regulation in the United States. Massachusetts, which has a long history of robust consumer protection, is the latest jurisdiction to enter this battle. Parties servicing student loans will be required to comply with this licensing requirement, as well as those that already exist in other states, while keeping a close eye on developments in other countries.