BILL NUMBER: S5056A
SPONSOR: THOMAS
 
TITLE OF BILL:
An act to amend the financial services law, in relation to creating a
private education debt registry
 
PURPOSE GENERAL IDEA OF BILL:
The purpose of the bill is to give financial policymakers and consumers
a full and accurate view of the state of student debt in New York
through the creation of a private education debt registry.
 
SUMMARY OF PROVISIONS:
Section 1 of the bill amends the financial services law by adding a new
Article 9 to create the "private education debt registry." This article
requires all private education creditors operating in New York State
that are not already licensed or chartered by the Department of Finan-
cial Services (DFS) for their private education debt business to regis-
ter with the DFS, and requires all private education creditors to annu-
ally submit information on their private education debt activity,
regardless of debt's principal amount or interest rate. Private educa-
tion creditors are defined as including any person that originates
student loan debt or to which such a debt is owed, as well as to include
non-loan debt.
The annual information that private education creditor's must disclose
to DFS varies based on the type of creditor and includes: a list of
schools at which the private education creditor has provided a private
education debt to a consumer residing in the state, the total dollar
amount and number of private education debt made, both overall and
during the prior fiscal year, to consumers residing in the state and
made annually at each school, the range of interest rates and percentage
of applicants who receive those rates, the general default rate, the
default rate due to non-payment or due to other reasons, the total
dollar amount and number of private education debts made annually with a
cosigner, the total dollar amount and number of private education debts
that were used to refinance other private education debts, the total
dollar amount and number of private education debts for which the credi-
tor sued to collect, and a copy of the promissory notes and other agree-
ments used to issue private education debts. The bill provides for modi-
fied reporting requirements relating to private education debts that do
not arise from credit transactions. DFS must publish a summary of the
information received from private education creditors on their website
along with the name, address, telephone number and website for all
private education creditors.
DFS is authorized to promulgate rules and regulations. A violation of
this article done knowingly may result in a civil penalty up to $10,000
for each violation or being barred from acting as a private education
creditor for up to ten years.
Section 2 of the bill contains the effective date.
 
JUSTIFICATION:
In New York, consumer lenders are not required to be licensed unless the
loan is both smaller than $25,000 and at a rate above 16 percent. (1)
Even subprime loans generally have interest rates below 16 percent. As a
result, private education creditors who do not meet licensing require-
ments operate below the Department of Financial Services' radar. This
makes information related to private education debts originated to New
Yorker borrowers at rates below 16 percent scarce. Additionally, private
education creditors that are regulated by DFS are not required to
specifically report on their education debt portfolios. Further, there
is increasing national scrutiny of school-based debt collection and the
role of institutions of higher education as creditors. The federal
Consumer Financial Protection Bureau began to examine school-based lend-
ing in 2022, and determined that transcript withholding as a means of
collecting these debts is "abusive" in violation of federal consumer
protection law. New York State in 2022 prohibited the practice of tran-
script withholding at all schools in the state, which serves as a debt
collection tactic for school-based education debt, but has not taken any
additional steps to study or regulate these debts themselves.
Whereas federal student loan terms are set by federal law, and whereas
data about the federal student loan market are regularly published by
the federal government, the lack of consistently available data related
to private education debt and the variety of persons that act as private
education creditors means that we do not know the full size of the
market, trends in origination, terms and conditions of debts, differ-
ences in finance costs across demographic groups, default rates, rates
of cosigning, prevalence of private student debt and repayment outcomes
among older consumers, or outcomes related to student loan servicing.
Any data that are available are extrapolations.
To address this lack of data, Colorado, Maine, California, Louisiana,
and Illinois require private education creditors to annually submit data
to financial regulators. New York should do the same.
This bill does not require any changes to the business practices of
private education creditors, other than require them to share data with
the State.
 
PRIOR LEGISLATIVE HISTORY:
New bill.
 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
To be determined.
 
EFFECTIVE DATE:
This act shall take effect.
1 New York Bank Law 340