American Bar Association’s Business Law Today March Month-In-Brief: Business Regulation & Regulated Industries.
On March 6, 2023, the California Department of Financial Protection and Innovation (DFPI) issued a notice of second modifications to proposed regulations under the Student Loan Servicing Act (Act) (Amendment). Previously, in September 2022, DFPI issued proposed rules to provide additional detail and clarity to the Student Loans: Borrower Rights law, which became effective January 1, 2021. The Amendment provides additional clarity in the relevant definitions and regarding the borrower’s rights with respect to electronic payment cutoff times, and also technical reporting requirements.
The Amendment reverts the definition of “education financing products” to include private student loans. This was used in the original proposed text, and it is proposed as a modification for consistency throughout the rules and regulations. Readers should note, however, that the Amendment also adds that a “student loan” includes any product used to finance a postsecondary education, including federal student loans and private student loans. That definition appears to include both income share agreements (ISAs) and “installment contracts” in which a postsecondary institution extends credit to a student.
Additionally, the Amendment adds language clarifying that the payment cap applicable to ISAs may be expressed as an APR, or an amount or a multiple of the amount advanced, covered, credited, deferred, or funded, excluding charges related to default. The payment cap is the maximum amount payable under an ISA, which is consistent with practices used by ISA providers as stated in the comments to the modified text.
The Amendment also revises the definition of “qualifying payments” to provide clarity that qualifying payments count toward the maximum payments and payment cap, but not the payment term. As a practical matter, ISA providers count qualifying payments toward the payment term, but the payment term is a fixed length of time that is not dependent on the number of qualifying payments. Therefore, the updated definition reflects this concept in practice.
Finally, the Amendment specifies certain technical requirements. If a servicer has not posted a cutoff time for an electronic payment due on any type of student loan to be credited on the date the payment is made, a payment made by 11:59 p.m. Pacific Time (standard or daylight, as applicable) on the due date must be credited as of that date and count as an on-time payment. The Amendment aligns regulatory expectations with national banking and operational standards in instances where cutoff times are not posted. The Amendment also details technical requirements for examinations, books, and records requirements. Notably, these technical requirements also extend to non-licensee filers, or a person who do not require a license under the Act but is otherwise subject to the Student Loans: Borrower Rights law.
Comments on the second modifications were due March 23, 2023.
Reprinted with permission from the American Bar Association’s Business Law Today March Month-In-Brief: Business Regulation & Regulated Industries.
