Effective October 16, the New York State Department of Financial Services adopted final regulations impacting student loan servicers operating in the state. The legislation, titled Article 14-A, passed in April 2019 and imposes new licensing requirements and servicing standards on institutions that service loans for borrowers residing in New York. The new regulations will affect more than two million student loan borrowers in New York. Troutman Sanders previously reported on the proposed regulations in August.

The NYDFS published the proposed regulations on July 31, which triggered a 60-day comment period that expired on September 29. During that time, the NYDFS received comments on its proposals from a broad assortment of interested parties, ranging from industry members and banking institutions, to consumer groups and trade groups, and even from the Office of the Attorney General. Ultimately, the NYDFS rejected most of the suggestions. One significant rebuff was a request for a delayed effective date because the proposed laws expanded a number of statutory requirements that would become effective one week after the final regulations were issued.

The final regulations revised several vital provisions from the original proposals. Those changes include the definition of specific terms, incorporating a deadline for the servicer to provide a borrower with information on the handling of nonconforming payments, details of what is included in the annual notice of information on repayment options or forgiveness to include discharge options, and the ability of borrowers to obtain hard copies of required disclosures.

Importantly, the definition of “servicing” was revised to state, “Servicing shall not include collecting, or attempting to collect, on a Direct Loan or FFELP Loan for which no payment has been received for 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.” The original language in the proposal simply stated 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.” In addition, the term “student loan” is now defined 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.” The original language in the proposal defined a student loan only as “any loan to a borrower to finance postsecondary education or expenses related to postsecondary education.”

These changes were implemented to ensure that servicers apply payments in the best interest of the borrowers and are intended to bring student loan servicer regulations more in line with the state’s revamped mortgage loan servicing industry laws and regulations.