California Requires State Licensing of Student Loan Servicers
California enacted the Student Loan Servicing Act on September, 29, 2016. This legislation requires organizations involved in "servicing" a student loan in California to obtain a license from the state's Commissioner of Business Oversight, effective July 1, 2018.
The California legislation applies both to companies that operate in California as well as companies that service student loans to California borrowers.
The definition of servicing includes the collection of payments, communicating with borrowers on behalf of the holder of the promissory note and maintaining account records, as well as any interaction with the borrower in connection to the borrower's loan with the goal of helping the borrower to avoid default.
There are exceptions for banks, trust companies, industrial loan companies, S&L associations, savings banks, credit unions and colleges servicing their own loans. The legislation does not affect tuition installment plans.
The legislation also has provisions concerning the communication of adverse information to credit bureaus and requirements concerning the processing of overpayments and transferring a loan to a different servicer.