[Co-Author: Megan McDowell*]

The California Department of Financial Protection and Innovation (DFPI) recently issued a Notice of Modification to Proposed Regulations and published the newly modified proposed regulations to amend its student loan servicing regulations. Among other things, the modified regulations would expand the definition of “income share agreement,” impose additional rules related to responding to a borrower’s qualified written request, and expand the requirements for the DFPI’s Aggregate Student Loan Servicing Report.

In September 2022, the DFPI originally proposed the adoption of new regulations and amendments to existing regulations implementing the Student Loan Servicing Act and the Student Loans: Borrower Rights law. The primary changes in that proposal included expanding the definition of “education financing products” to include income share agreements, adding notification requirements for entities not required to be licensed under the law, and requiring licensees to maintain an aggregate student loan servicing report containing detailed information for each education finance product it serviced.

In response to public comments the DFPI received in response to the original proposal, the DFPI proposed some additional amendments to the rules, including:

• The amendments expand and refine the definitions related to income share agreements. First, the DFPI expanded the definition of “income share agreement” to cover expenses beyond tuition. The DFPI also added a definition for “maximum payments” for purposes of income share agreements. Lastly, the DFPI refined the definition of “payment cap,” now allowing it to be expressed “as an amount or a multiple of the amount advanced, covered, credited, deferred, or funded.”
• In conjunction with expanding the definitions related to income share agreements, the amendments revised the definition of “education financing products” to more closely align with the provisions of the federal Truth in Lending Act, providing consistency for servicers and eliminating operational burdens. As a consequence, the definition of “education financing products” also no longer includes income share agreements and installment contracts, which are separately defined.
• The amendments clarify that payments received by 11:59 p.m. Pacific Time must be credited on the same day, regardless of the time zone of the person making the payment.
• For qualified written requests, the amendments require the servicer to respond by the borrower’s preferred method of communication (limited to email and the U.S. Postal Service) or regular mail and all known email addresses if no preferred method is specified by the borrower.
• Lastly, the amendments revise the requirements for the Aggregate Student Loan Servicing Report to better accommodate income share agreements and installment contracts.

Since these amendments touch most directly on income share agreements, servicers of income share agreements serving California borrowers in particular should carefully review the proposed changes and start preparing now for compliance. 

*Megan McDowell is not a licensed attorney.