From The Desk of the Regulator:
Student Loan Servicing Amendment
The council of the District of Columbia amended the Department of Insurance and Securities Regulation Establishment Act of 1996 to among other things license student loan servicers. Section 31-101 of the DC code defines student loan servicing as the process of collecting payments and interest and performing other administrative tasks associated with maintaining a student education loan. The term “student loan servicing” includes:
- Receiving any scheduled periodic payments from a student loan borrower or notification of payments;
- Applying payments to the student loan borrower’s account pursuant to the terms of the student education loan or contract governing the servicing;
- Maintaining account records for the student education loan during a period when no payment is required on the loan; and
- Communicating with the student loan borrower regarding the student education loan; and having other interactions to assist a student loan borrower, including activities to help prevent default on obligations arising from a student education loan.
After reviewing the language in this amendment, a number of collection agencies engaged in the collection of delinquent student loans have asked Cornerstone to assist them in obtaining a license as a student loan servicer in the District of Columbia. As part of the application process in DC, applicants are required to provide a description of student loan related services to be rendered in DC. While those descriptions are detailed and specific to the individual applicant, they are similar in that they all attempt to collect delinquent student loan balances from borrowers in the District of Columbia. To date, the DC Associate Commissioner of Banking has responded to all collection agencies applying for a student loan servicer license in DC with a letter stating that a student loan servicer license is not needed to conduct the activities described in the application materials provided.
What This Means For You
The DC Department of Insurance, Securities and Banking administers the student loan servicer licensing program in Washington DC. While they are aware of the industry concerns related to operating without a license, they have not at this time issued an advisory opinion, established a rule, or published any other authoritative guidance that specifically exempts the activities traditionally performed by a collection agency from the definition of a student loan servicer. In the absence of any authoritative guidance on the subject, they have agreed to process applications where the agencies or clients they represent have a different interpretation of the underlying statutes.