On November 27, 2019, a New Jersey law requiring that student loan servicers obtain a license from the New Jersey Department of Banking and Insurance will go into effect.
The new law, among other things, will require the Department to appoint a student loan ombudsman to help student loan borrowers with understanding loan agreements and dispute resolution. The law also imposes a new requirement that licensure be renewed annually. Notably, however, the law exempts a number of types of entities from that licensure requirement, including: banks and credit unions (as well as their wholly-owned subsidiaries and operating subsidiaries) and persons who service loans under contract with the U.S. Department of Education.
Some of the requirements to obtain a student loan servicer license include:
- Proof that the servicer’s financial condition is sound;
- Adequate record-keeping of each student loan transaction for at least two years following pay-off or assignment;
- Business that is conducted “honestly, fairly, equitably, carefully and efficiently” within the purpose of the Act;
- Payment of license and investigation fees; and
- Compliance with annual assessments by the Department.
Some of the prohibitions for student loan servicers include:
- Obtaining property by fraud or misrepresentation;
- Misapplying loan payments; and
- Providing inaccurate or incomplete information to credit reporting agencies.
Once the law is enacted, the Department will likely clarify certain terms and the scope of the law through the regulatory process. Troutman Sanders will continue to monitor and report on any developments.