Photo by Irina Kozhemyakina

A national student loan servicer headquartered in New Jersey will pay a $236,309 settlement to New York state for operating as a sales finance company without a license, under an agreement announced by the state’s top financial regulator.

Tuition Options LLC, whose chairman, Tim Fitzpatrick, formerly led Sallie Mae as CEO, will pay a $203,000 civil penalty and an additional $33,309 in disgorgement under the agreement with the New York Department of Financial Services.

Mount Laurel-based Tuition Options was represented by James Kim, a partner at Ballard Spahr LLP in Manhattan. Kim did not immediately return an Aug. 15 call for comment.

A DFS investigation found that the company, which is owned by EDvantage LLC, acted as a sales finance company without pursuing a license to do so from the agency.

State law requires any company that purchases financing agreements between schools and students to obtain such a license. Tuition Options, according to DFS, had purchased or otherwise acquired as collateral 55 of those financing agreements without a license.

The company entered into purchase advance agreements and collateral agreements with for-profit schools, which Tuition Options made loans to. To secure those loans, according to DFS, the company held 53 financing agreements as collateral and purchased two others.

Tuition Options was also found to have violated the federal E-Sign Act by, among other things, failing to provide certain disclosures to borrowers prior to asking them to sign for their loan.

The settlement is a precursor to the effective date of a new law in New York, which will require certain student loan servicers to be licensed with the state and regulated by DFS. The agency proposed its initial regulation for those companies last month, which will, among other things, allow the state to bar a servicer from operating in New York if they engage in “unsound” practices.

“DFS is taking action to protect New York’s students and ensure that all student loan servicers comply with New York licensing laws,” said Linda Lacewell, superintendent of DFS. “The department is actively preparing to implement and enforce New York’s recently enacted student loan servicer legislation and will continue to take steps to protect student loan borrowers from unlawful or predatory practices.”

The new licensing law is set to take effect on Oct. 9. Tuition Options, under the settlement with DFS, agreed to apply for such a license. The company did not immediately comment on the settlement.