The state Department of Financial Services’ new proposal on student loan servicers takes a one-size-fits-all approach to regulating the student loan industry, said New York Credit Union Association SVP/General Counsel Henry Meier in a recent comment letter to the department.
The proposed regulations augment a new article of the state banking law and generally establishes licensing requirements for entities other than banks and credit unions that service student loans, and establishes minimum standards of conduct for all student loan servicers.
Although credit unions are exempt from the licensure requirements in the proposal, they would have to register with the state and comply with a number of mandates. The statute and regulations establish minimum servicing standards and outline prohibited practices – requirements that would apply to any student loan servicer, including a credit union, in New York state.
While the ultimate goal of the Legislature was to protect students from deceptive practices, Meier cautioned that if the final regulations do not provide greater flexibility to smaller lenders and servicers, students will actually have fewer places to get fair loans.
Meier explained that a number of smaller credit unions in New York have a long history of servicing private student loans with virtually no history of delinquencies. Meier said these credit unions feel the proposal presupposes a level of resources that they do not possess.
“Nevertheless, under this regulation, they would be required to have instant access to a consolidated loan history available to their student borrowers 24 hours a day,” wrote Meier. “This mandate is not in the legislation. Similarly, the regulations establish loan mitigation disclosures and mandated access to staff which presupposes that institutions offer a variety of student loan services and have staff dedicated exclusively to student lending.”
He went on to state that Credit Union Organizations and Credit Union Service Organizations, which many credit unions use to service their student loans, should be exempt from the regulations.
Finally, Meier explained it was not clear what authority DFS had to independently examine a federal credit union or bank. He urged the department to clarify exactly which provisions it feels federally chartered institutions are subject to.
“This is particularly important since federal regulations already establish minimum disclosure requirements for student loans and institutions need guidance as to how they should reconcile these competing mandates,” he wrote.