California’s DFPI Publishes Proposed Rules to Implement the Student Loan Servicing Act | Ballard Spahr LLP

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On September 9, 2022, the California Department of Financial Protection and Innovation (the “DFPI”) issued a Notice of Proposed Rulemaking Action the enactment of ordinances for the implementation of the Student Loan Service Act (§ 28100 para. etc seq.) and the Student Loan Act: Borrower’s Rights (Civil Code section 1788.100, onwards.). The comment period for the proposed regulations ends on October 28, 2022. Along with the notice, the DFPI has issued a First justification and the text of the proposed regulations.

In its press release, the DFPI notes that the “proposed rules clarify that education finance products, including but not limited to income-sharing agreements and installment agreements, are student loans and that service providers of such education finance products are covered by the law and must be licensed.” The proposed rules define terms and documents specific to education finance products. The proposed rules also amend some existing rules, based on DFPI’s years of experience in licensing student loan service providers and conducting regulatory reviews.”

It should be noted that the regulations define “income-sharing agreement” or “ISA” to mean “an agreement between a student and a school or income-sharing provider” in which the student agrees to pay a fixed percentage of future income the student to pay for the payment of semesters, in exchange for waiving or paying the cost of some or all of the student’s tuition.” In addition, ISAs are classified as “educational finance products” that include “any private student loan other than traditional student loans are”, and all such products would be subject to the law.

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