Massachusetts Issues Rules of Conduct for Student Loan Management | Hudson Cook, LLP
In last month’s issue of Knowledge we discussed a new licensing regime in the Commonwealth of Massachusetts specific to student loan officers. As of the publication date of this article, the rules that these agents must follow in carrying out their activities have not yet been published.
This changed on June 28 when the Banking Division released emergency changes to its Debt Collection and Third Party Loan Servicing regulations to both implement the new loan manager licensing requirement. students and establish the rules of conduct regulations that these parties must follow. On the same day, the Division also released more modest emergency changes to its record keeping regulations to address the addition of student loan managers as a new licensing regime.
These emergency regulations – published just days before their entry into force, on July 1 – will be the subject of a hearing and a possibility of comments in early August. Emergency regulations (both clean and red lines) are available on the Banking Division website and can be viewed directly here (for licensing and driving regulatory requirements applicable to student loan administrators) and here (for changes to the record keeping regulations).
The new requirements are grafted onto a relatively old chassis. The Division has a long history of regulations governing the requirements for the registration of third-party loan managers and the licensing of debt collectors. These rules, which are codified in Part 18 of the Banking Division Regulations, are divided into two general parts: (1) the rules that govern the standards of application and licensing or registration and (2) the rules which govern the conduct and activities of such authorized or registered entity.
Regarding licensing requirements, two separate provisions have been added to the existing regulation. The former governs the activities of a student loan manager, with these licensing requirements generally working side by side with the requirements for debt collectors in terms of applicant financial liability, bonding, and loan requirements. financial statements, as well as those governing the applicant’s “character and suitability.” The student loan manager’s license is subject to annual renewal.
The second set of application requirements, however, are specific to the granting of an automatic federal student loan service license. These licenses are granted to parties who act (or intend to act) exclusively as the administrator of student loans under contract with the United States Secretary of Education. Unlike the General Student Loan Manager License, this license is perpetual and only terminates when the holder ceases to act as a Student Loan Manager under contract with the Secretary of Education.
While there is additional helpful content, emergency regulations generally seem to follow the content and wording of the underlying law. A little more useful on the licensing issue, is a Frequently Asked Questions Document issued by the Banking Division at the same time as the publication of the emergency regulations. This FAQ document provides additional and helpful color on some of the licensing requirements.
In terms of new substantive content, the emergency regulations now include a separate provision specific to student loan management practices. Similar to the rules governing the conduct of debt collectors and third party loan managers, the new provisions governing the conduct of student loan management practices generally prohibit the use of “unfair, deceptive or unreasonable” management practices. They then provide a non-exhaustive list of activities that would be considered to violate the new maintenance standards.
Several of these bans are described as general garden variety fraud. For example: the student loan manager should not engage in any scheme to defraud or mislead student loan borrowers, he should not engage in any unfair, deceptive, unreasonable or deceptive service (eg example: by distorting the amount, nature or terms of charges or payments due under the loan or the borrower’s obligation to repay it), duty officers should not obtain goods by fraud or error , knowingly or recklessly. These prohibitions should fall into the category of common sense.
Others, on the other hand, are a bit more focused. For example, the regulation prohibits:
- Allocate partial payments to maximize late fees;
- Charge late fees for payments made during a grace period;
- Misrepresenting the availability of repayment options for student loan borrowers, or otherwise failing to disclose all available repayment options to a borrower who has asked about alternative repayment options;
- Direct student loan borrowers to forbearance status without disclosing any other repayment options that may be available; and
- Not providing information to student loan borrowers to notify or confirm changes in account status in accordance with borrower’s loan terms or other documents.
In addition, the emergency regulations require that student loan administrators who intend to sell or transfer management services provide sufficient notice of such a transfer before it occurs (including the date effect of the transfer, the name of the new manager and the contact details of the new and existing service providers).
Parties that manage student loans would be well advised to review the new regulations to ensure that they are managing loans in accordance with the standards now in place. They are now ready to comply with these new requirements.