By the Division of Banks

Business Of Collecting Student Loans

Any person who makes secured or unsecured loans of $6,000 or less with an interest rate which exceeds 12% per annum is required to be licensed as a small loan company pursuant to Mass. Gen. Laws ch. 140 § 96. The maximum interest rates for these loans is 23% plus a $20 administrative fee as set forth in the Small Loan Rate Order, 209 CMR 26.00 et seq. However, if the lender originates unsecured loans in excess of $6,000, no license is required under the statute and no maximum interest rate is established.

In the event that a lender negotiates or arranges loans secured or unsecured on behalf of any bank or other lender, and the amount of said loan is $6,000 or less, Mass. Gen. Laws ch. 140 § 96 requires that the lender be licensed as a small loan company based on the lender being a loan broker or loan arranger for the loans.

In addition, the purchaser of notes for $6,000.00 or less with an interest rate greater than 12% is deemed to be engaging in the business of making small loans and is required to be licensed under said statute. No license is required if the principal amount of the notes purchased is greater than $6,000. There is no license required for the servicing of existing loans. However, when a loan being serviced becomes more than 30 days past due, it becomes a "debt" and the servicer would be required to obtain a collection agency license under Mass. Gen. Laws ch. 93 § 24 in order to collect the debt.