California updates Student Loan Servicing Laws

July 26, 2018
By Cornerstone Staff

Update: California Governor Makes Law Change favoring Debt Collectors

On Friday September 14, California Governor, Jerry Brown, signed into law.  This amendment to the “California Student Loan Servicing Act” clarifies that  debt collectors who collect on defaulted student loans are NOT student loan servicers.  This clarification was important because on July 1, 2018 student loan servicers were required to have a license to operate in California (read about that post below.)

Originally posted July, 26, 2018: Statute Enforcement in California

Effective July 1, 2018, If you service a student loan in California you must first obtain a license.

California’s Student Loan Servicing Act (the Act) 1 provides that, as of July 1, 2018: “No person shall engage in the business of servicing a student loan in this state, … , without first obtaining a license pursuant to this division. “2

The Commissioner of the Department of Business Oversight (Commissioner) is legislatively mandated to administer the provisions of the Act, including applications and licensing. 3 All persons to whom the Act applies, who are engaged in the business of servicing student loans in California, must be licensed as of July 1, 2018.

According to California Financial Code Section 28104 (j)  “Servicing” means any of the following activities related to a student loan of a borrower:
(1) Performing both of the following:
(A) Receiving any scheduled periodic payments from a borrower or any notification that a borrower made a scheduled periodic payment.
(B) Applying payments to the borrower’s account pursuant to the terms of the student loan or the contract governing the servicing.

(2) During a period when no payment is required on a student loan, performing both of the following:
(A) Maintaining account records for the student loan.
(B) Communicating with the borrower regarding the student loan on behalf of the owner of the student loan promissory note.

(3) Interacting with a borrower related to that borrower’s student loan, with the goal of helping the borrower avoid default on his or her student loan or facilitating the activities described in paragraph (1) or (2).

1 AB 2251 (Ch. 824, Stats. 2016), codified at Fin. Code, § 28100, et seq.
2 Fin. Code,§ 28102, subd. (a).
3 Fin. Code, §§ 28106 , 28112, and 28118.


Cornerstone Staff

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