Washington, D.C. Amends Student Loan Servicing Regulations

Ballard Spahr LLP

The District of Columbia Department of Insurance, Securities and Banking (DISB) has announced a change to the way it calculates a controversial annual assessment fee on student loan servicer licensees. The change was made on December 26, 2017 through the adoption of revised emergency rules under the Student Loan Ombudsman Establishment and Servicing Regulation Amendment Act of 2016.

The new rules supersede the emergency rules adopted by the DISB on September 8, 2017. The DISB made only one substantive change: the annual assessment fee due at license renewal has been reduced to $0.50 per borrower residing in the District of Columbia serviced by a servicer. The fee was initially set at $800 plus $6.60 per loan.  As we noted in our summary of the emergency rules in September, that assessment fee schedule effectively would have resulted in the Department of Education paying for DISB administrative expenses (generally speaking, the fee would have been nearly as much as the servicing fee paid by ED to federal student loan servicers). A blackline of the revised emergency rules against the rules adopted in September is online here.

The DISB indicated it is continuing to consider the comments it received in the fall following the publication of its initial emergency rules and noted it is making “appropriate revisions to the rules based upon stakeholder concerns.” We expect the DISB to either adopt further revised emergency rules or publish a notice of final rulemaking by April 25, 2018 (the date the emergency rules are scheduled to expire).

As part of its basis for adopting the revised rules on an emergency basis, the DISB repeated its concerns about student loan borrower protections based on the U.S. Department of Education’s amendment, repeal or suspension of certain student loan regulations and guidance. The DISB added that it sought “continuous regulatory coverage” for the multiple entities that have already been approved for licensure and several others that are pending approval.

In addition to Washington, D.C., licensing requirements and business conduct standards specific to student loan servicers currently exist in Connecticut and California, and a new Illinois law will become effective at the end of this year. In light of the broad coverage of recently-enacted state laws requiring servicers of student loans to be licensed and the need for covered entities, which might arguably include guaranty agencies, to comply with varying state-specific requirements, two national trade groups representing higher education finance organizations have written letters to the U.S. Department of Education urging it to issue preemption guidance. Meanwhile, a number of other states, including Washington and New York, are actively pursuing legislation to supervise and regulate student loan servicers and create a student loan advocate or ombudsman position in state government. In Washington state, Attorney General Bob Ferguson is working to advance legislation and recently released a report titled, “Borrowers in Crisis: Student Debt in Washington.” In New York, Governor Andrew Cuomo has made student loan borrower protection one of the initiatives of his 2018 agenda.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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