Friday 9/14/2018, Governor Jerry Brown signed into law Assembly Bill 38, an important amendment to the “California Student Loan Servicing Act” that clarifies that debt collectors who collect on defaulted student loans are not student loan servicers. This is important because student loan servicers are required to have a license to operate in California as of July 1, 2018.

California was the first state in the nation to adopt a student loan servicing act into law in 2016. The original law had a fairly broad definition of “servicing” that RMA has been concerned could be interpreted broadly to include debt collectors, despite not being the intent of the bill’s author. Adding to RMA’s concern was the noticeable absence of debt collectors from the law’s listed exemptions.

In February 2018, the California Department of Business Oversight, the state agency administering the program, did in fact interpret the new law to require debt collectors to be licensed as student loan servicers if they attempted collection on any student loans.

RMA and the California Association of Collectors worked together in fighting for the adoption of the clarifying amendments which were signed into law today to exempt debt collectors from the student loan servicing requirements.

The new definition of “Student loan servicer” includes the following language:

A “student loan servicer” does not include a debt collector, as defined in Section 1788.2 of the Civil Code, whose student loan debt collection business, and business operations, involve collecting, or attempting to collect, on defaulted student loans, that is, federal student loans for which no payment has been received for 270 days or more, or private student loans, in default, according to the terms of the loan documents. Debt collectors who also service nondefaulted student loans, as part of their business, and business operations, are “student loan servicers.”

This alert is intended for members of the Receivables Management Association International and is for informational purposes only and is in no way intended to provide legal advice. Members are encouraged to consult with an attorney of their choice for legal advice concerning this matter.