Amended in Assembly March 28, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 2251

Introduced by Assembly Member Mark Stone

February 18, 2016

begin delete An act to add Article 24 (commencing with Section 70050) to Chapter 2 of Part 42 of Division 5 of Title 3 of the Education Code, relating to student financial aid. end delete begin insert An act to amend Section 22000 of, to amend the heading of Division 9 (commencing with Section 22000) of, and to add Chapter 3.5 (commencing with Section 22660) to Division 9 of, the Financial Code, relating to student loan servicers. end insert

LEGISLATIVE COUNSEL’S DIGEST

AB 2251, as amended, Mark Stone. begin delete Student Loan Borrowers’ Bill of Rights. end delete begin insert Student loan servicers: licensing and regulation: Student Loan Borrower’s Bill of Rights. end insert

begin insert

(1) The California Finance Lenders Law generally provides for the licensure and regulation of persons who are engaged in the business of making consumer or commercial loans by the Commissioner of Business Oversight, as specified, and makes a willful violation of its provisions a crime.

end insert begin insert

This bill would expand the California Finance Lenders Law and the authority of the commissioner to include the licensure, regulation, and oversight of student loan servicers engaging in the servicing of student education loans for student loan borrowers, as those terms are defined, and would rename the law the California Finance Lenders Law and Student Loan Borrower’s Bill of Rights. The bill would prohibit a person from acting as a student loan servicer without a license, unless exempt from the licensing requirement. The bill would require a person applying for a license to, among other things, pay an unspecified fee to pay the actual costs for the investigation of the application and to sign the application under penalty of perjury. By expanding the scope of the crime of perjury and the basis for a violation of the California Finance Lenders Law, this bill would impose a state-mandated local program. The bill would specify the basis for the commissioner to deny, revoke, or suspend a license that includes, among other basis, a failure to comply with an investigation by the commissioner. The bill would make legislative findings in support of its provisions.

end insert begin insert

(2) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

end insert begin insert

This bill would provide that no reimbursement is required by this act for a specified reason.

end insert begin delete

Existing law establishes the Student Aid Commission as the primary state agency for the administration of state-authorized student financial aid programs available to students attending all segments of postsecondary education in this state.

end delete begin delete

This bill would establish the Student Loan Borrowers’ Bill of Rights, which would require student educational loan servicers to provide each of their student loan borrowers in this state with (1) reliable information about the borrower’s loan and repayment options, (2) quality customer service and fair treatment, and (3) meaningful access to federal affordable repayment and loan forgiveness benefits available to the borrower.

end delete

Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program:  begin delete no end delete begin insert yes end insert .

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert The Legislature finds and declares all of the
following: end insert

begin insert

(a) Student loan debt is a national crisis. More than 40,000,000
people in the United States owe some amount of student
educational loan debt. Total student educational debt in the United
States currently exceeds $1.2 trillion, surpassing both the amount
of credit card debt and car loans. With college costs continuing
to rise, student educational debt continues to rise, and there is no
reduction in sight.

end insert begin insert

(b) While California’s financial aid programs are some of the
strongest in the nation and our state’s college graduates have
among the lowest educational debt burdens, California students
and graduates still incur significant debt. According to The College
Institute for College & Success, 55 percent of California’s
graduating class of 2014 has student educational loan debt.
According to the United States Department of Education, as of
January 2015, there were approximately 4,156,00 student
educational loan borrowers in California, and the total student
educational loan debt outstanding for Californians was
approximately $1.2 billion.

end insert begin insert

(c) Student educational loan debt is a hindrance on the state’s
economy, preventing borrowers from achieving financial
independence, buying property, and starting businesses.

end insert begin insert

(d) Student educational loan servicers administer student loans,
serving as a critical link between borrowers and lenders in
managing accounts, processing payments, and communicating
directly with borrowers. Despite this critical relationship,
according to the federal Consumer Financial Protection Bureau
(CFPB), there are no consistent, marketwide federal standards
for student educational loan servicing.

end insert begin insert

(e) The CFPB released a report in September 2015 that found
that student educational loan borrowers encounter servicers that
discourage borrower-friendly alternative payment plans, fail to
respond to questions and payment processing errors, and fail to
provide sufficient information to borrowers regarding payments,
benefits, interest rates, and other charges.

end insert begin insert

(f) It is the intent of the Legislature to promote all of the
following:

end insert begin insert

(1) Meaningful access to federal affordable repayment and loan
forgiveness benefits.

end insert begin insert

(2) Reliable information about student educational loans and
loan repayment options.

end insert begin insert

(3) Quality customer service and fair treatment.

end insert

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert The heading of Division 9 (commencing with Section
22000) of the end insert begin insert Financial Code end insert begin insert is amended to read: end insert

 

Division 9.  CALIFORNIA FINANCE LENDERS LAW

begin insert AND THE CALIFORNIA STUDENT LOAN BORROWER’S BILL
OF RIGHTS end insert

 

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 22000 of the end insert begin insert Financial Code end insert begin insert is amended to
read: end insert

22000.  

This division is known and may be cited as the
“California Finance Lenders begin delete Law.” end delete begin insert Law and the California Student
Loan Borrower’s Bill of Rights. end insert begin insert ” end insert

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Chapter 3.5 (commencing with Section 22660) is added
to Division 9 of the end insert begin insert Financial Code end insert begin insert , to read: end insert

begin insert

 

Chapter   begin insert 3.5. end insert California student loan borrower’s bill
of rights

 

begin insert 22660. end insert   

For the purposes of this chapter, the following terms
shall have the following meanings:

(a) “Control” means the possession, directly or indirectly, of
the power to direct, or cause the direction of, the management and
policies of a licensee under this chapter, whether through voting
or through the ownership of voting power of an entity that
possesses voting power of the licensee, or otherwise. Control is
presumed to exist if a person, directly or indirectly, owns, controls,
or holds 10 percent or more of the voting power of a licensee or
of an entity that owns, controls, or holds, with power to vote, 10
percent or more of the voting power of a licensee. No person shall
be deemed to control a licensee solely by reason of his or her status
as an officer or director of the licensee.

(b) “Department” means the Department of Business Oversight.

(c) “Engage in the business” means, without limitation,
servicing student education loans, including, but not limited to,
the dissemination to the public, or any part of the public, by means
of written, printed, or electronic communication or any
communication by means of recorded telephone messages or
spoken on radio, television, or similar communications media, of
any information relating to the servicing of student loans.

(d) “In this state” includes any activity of a person relating to
servicing a student education loan that is directed to a person
residing in the state.

(e) “Licensee” means a person licensed under this chapter.

(f) “Person” means a natural person, a sole proprietorship, a
corporation, a partnership, a limited liability company, an
association, a trust, a joint venture, an unincorporated
organization, a joint stock company, a government, or a political
subdivision of a government, and any other entity.

(g) “Servicing” means any of the following activities:

(1) Receiving any scheduled periodic payments from a student
loan borrower pursuant to the terms of a student education loan.

(2) Applying the payments of principal and interest and other
payments with respect to the amounts received from a student loan
borrower, as may be required pursuant to the terms of a student
education loan.

(3) Performing other administrative services with respect to a
student education loan.

(h) “Student education loan” means any loan primarily for
personal use to finance education or other school-related expenses.

(i) “Student loan borrower” means either of the following:

(1) A person who is resident of the state who has received or
agreed to pay a student education loan.

(2) A person who is a resident of the state who shares
responsibility for repaying a student education loan with a person
described in paragraph (1).

(j) “Student loan servicer” means, to the extent authorized by
federal law, an entity or person, wherever located, responsible for
the servicing of a student educational loan for a student loan
borrower. “Student loan servicer” shall not include a bank or
credit union.

begin insert 22660.5. end insert   

A licensee shall provide a student loan borrower with
all of the following:

(a) Accurate information about all the student education loan
repayment options applicable to the student loan borrower.

(b) Quality customer service and fair treatment.

(c) Complete and accurate information on federal affordable
repayment and loan forgiveness benefits applicable to the student
loan borrower.

begin insert 22660.10. end insert   

(a) A person shall not act as a student loan servicer,
directly or indirectly, without a license from the commissioner
pursuant to this chapter.

(b) Notwithstanding subdivision (a), the following persons are
exempt from the licensing requirement in subdivision (a):

(1) A bank, trust company, insurance company, or industrial
loan company doing business under the authority of, or in
accordance with, a license, certificate, or charter issued by the
United States or any state, district, territory, or commonwealth of
the United States that is authorized to transact business in this
state.

(2) A federally chartered savings and loan association, federal
savings bank, or federal credit union that is authorized to transact
business in this state.

(3) A savings and loan association, savings bank, or credit union
organized under the laws of this or any other state that is
authorized to transact business in this state.

(4) A wholly owned service corporation of a savings and loan
association or savings bank organized under the laws of this state
or the wholly owned service corporation of a federally chartered
savings and loan association or savings bank that is authorized
to transact business in this state.

(c) A person shall file an application for a license under this
chapter with the commissioner to engage in servicing student
education loans as a student loan servicer in this state.

(d) A licensee shall not engage in servicing a student education
loan as a student loan servicer under a name other than the name
that appears on a license.

(e) The commissioner may promulgate regulations on the
business activity that may be conducted at a location where a
licensee engages in servicing student education loans to prohibit
the conduct of business activity that facilitates evasions of the
purposes of this chapter.

(f) A licensee shall make available to the commissioner all of
the licensee’s records pertaining to servicing a student educational
loan for a student loan borrower, including, but not limited to, all
books, accounts, papers, and files, regardless of the location of
those records, within 10 calendar days of a request from the
commissioner.

begin insert 22660.15. end insert   

(a) The commissioner shall issue a license to a
person to engage in business as a student loan servicer if all of
the following requirements have been met:

(1) The person filed a complete application for a license in a
form prescribed by the commissioner.

(2) The person signed the application under penalty of perjury.

(3) The person made a payment of (____) as a reasonable fee
to pay the actual costs for the department to investigate the
application.

(4) The department has completed an investigation of the
application.

(b) Upon reasonable notice and opportunity to be heard, the
commissioner may deny an application of a person to engage in
business as a student loan servicer for any of the following reasons:

(1) The person made a false statement of a material fact on the
application.

(2) The person or an officer, director, general partner, or other
person owning or controlling, directly or indirectly, 10 percent or
more of the outstanding interests or equity securities of the person
applying for the license has, within the last 10 years of the date
of application, committed any act involving dishonesty, fraud, or
deceit, or been convicted of, or pleaded nolo contendere to, a crime
substantially related to the qualifications, functions, or duties of
a person engaged in the business of servicing student education
loans.

(3) The person or an officer, director, general partner, or other
person owning or controlling, directly or indirectly, 10 percent or
more of the outstanding interests or equity securities of the person
applying for the license has violated any provision of this chapter.

(c) The commissioner shall, within 60 days from the filing of a
full and complete application for a license, including the receipt
of background and investigative reports from the Department of
Justice or other government agencies, and the payment of required
fees, either grant a license pursuant to this chapter or provide a
written explanation for the denial.

(d) The proceedings for a denial of a license shall be conducted
in accordance with Chapter 5 (commencing with Section 11500)
of Part 1 of Division 3 of Title 2 of the Government Code.

begin insert 22660.20. end insert   

(a) A license shall remain in effect until the license
is either suspended or revoked by the commissioner or surrendered
by the licensee. The commissioner may suspend or revoke a license
issued under this chapter if the commissioner finds that the licensee
violated any provision of this chapter or if any fact or condition
exists which, if it had existed at the time of the initial application
for the license, clearly would have warranted a denial of the
license. The commissioner shall not refund a license fee if the
license is surrendered, revoked, or suspended prior to the
expiration of the period for which it was issued.

(b) A licensee that ceases to engage in the business regulated
by this chapter and desires to no longer be licensed shall inform
the commissioner in writing and, at that time, surrender the license
and all other indicia of license to the commissioner. The licensee
shall file a plan for the withdrawal from regulated business, and
the plan shall include a timetable for the disposition of the business.
The plan shall also include a closing audit, review, or other
agreed-upon procedures performed by an independent certified
public accountant prescribed by rule or order of the commissioner.
Upon receipt of the written notice and plan, the commissioner
shall review the plan and, if satisfactory to the commissioner, shall
accept the surrender of the license. A license is not surrendered
until its tender is accepted in writing by the commissioner after a
review, and a finding has been made on the licensee’s plan
required to be filed by this section, and a determination has been
made that there is no violation of this chapter.

(c) The licensee shall notify the commissioner, in writing, of
any change in the information provided in the application for a
license, as applicable, not later than 10 business days after the
occurrence of the event that results in the information becoming
inaccurate.

(d) The commissioner may deem an application for a license
abandoned if the applicant fails to respond to any request for
information required by the commissioner or department during
an investigation of the application. The commissioner shall notify
the applicant, in writing, that if the applicant fails to submit
responsive information no later than 60 days after the date the
request for information was made, the application shall be deemed
abandoned. An application filing fee paid prior to the date an
application is deemed abandoned shall not be refunded.
Abandonment of an application pursuant to this subdivision shall
not preclude the applicant from submitting a new application and
fee for a license.

(e) A licensee shall only engage in business as a student loan
servicer at the place of business on the license. A change of
location of a place of business of a licensee shall require prior
written notice to the commissioner. Only one place of business
shall be authorized to engage in business under a license. A license
shall not be transferable or assignable.

begin insert 22660.25. end insert   

(a) A licensee shall do all of the following:

(1) Maintain staff adequate to meet the requirements of this
chapter, as prescribed by regulation or order of the commissioner.

(2) File with the commissioner any report required by regulation
or order of the commissioner.

(3) Comply with the provisions of this chapter, and with any
regulation or order of the commissioner.

(4) Submit to periodic examination by the commissioner as
required by this chapter.

(5) Advise the commissioner by amendment to its application
of any material judgment filed against, or bankruptcy petition filed
by, the licensee within five days of the filing.

(6) Comply with all applicable state and federal laws and tax
return filing requirements.

(7) Comply with any other requirement established by regulation
or order of the commissioner.

(b) The commissioner may require an applicant to submit a
statement signed under penalty of perjury agreeing to comply with
the requirements of this section.

(c) The commissioner may revoke or suspend a license for a
licensee’s failure to comply with the requirements of section.

begin insert 22660.30. end insert   

(a) A licensee shall not do any of the following:

(1) Directly or indirectly employ any scheme, device, or artifice
to defraud or mislead a student loan borrower.

(2) Engage in any unfair or deceptive practice toward any
student loan borrower or misrepresent or omit any material
information in connection with the servicing of a student education
loan, including, but not limited to, misrepresenting the amount,
nature or terms of any fee or payment due or claimed to be due
on a student education loan, the terms and conditions of the student
education loan agreement, or the student loan borrower’s
obligations under the student education loan.

(3) Obtain property of a student loan borrower by fraud or
misrepresentation.

(4) Knowingly misapply or recklessly apply payments made by
a student loan borrower to the outstanding balance of a student
education loan.

(5) Knowingly or recklessly provide inaccurate information to
a credit bureau regarding a student loan borrower.

(6) Fail to report both the favorable and unfavorable payment
history of the student loan borrower to a nationally recognized
consumer credit bureau at least annually if the loan servicer
regularly reports information to a credit bureau.

(7) Refuse to communicate with an authorized representative
of the student loan borrower who provides a written authorization
signed by the student loan borrower, provided the licensee may
adopt procedures reasonably related to verifying that the
representative is in fact authorized to act on behalf of the student
loan borrower.

(8) Negligently or intentionally make any false statement or
knowingly and willfully make any omission of a material fact in
connection with any information or reports filed with the
commissioner, the department, or another governmental agency.

(b) The commissioner may revoke or suspend a license for a
licensee’s failure to comply with the requirements of section.

begin insert 22660.35. end insert   

(a) The commissioner shall have the authority to
conduct investigations and examinations as follows:

(1) For purposes of initial licensing, license suspension, license
revocation, or general or specific inquiry or investigation to
determine compliance application requirements, the commissioner
may access, receive, and use any books, accounts, records, files,
documents, information, or evidence, including, but not limited
to, any of the following relating to the business of servicing student
education loans:

(A) Criminal, civil, and administrative history information.

(B) Personal history and experience information, including, but
not limited to, independent credit reports obtained from a consumer
credit reporting agency.

(C) Any other documents, information, or evidence that the
commissioner deems relevant to the inquiry or investigation
regardless of the location, possession, control, or custody of those
documents, information, or evidence.

(2) For the purposes of investigating violations or complaints
arising under this chapter against a licensee or person, the
commissioner may direct, subpoena, or order the attendance of
and examine under oath all persons whose testimony may be
required about the student education loan or account of the student
loan borrower.

(b) In making any examination or investigation authorized by
this section, the commissioner may control access to any documents
and records of the licensee or person under examination or
investigation. The commissioner may take possession of the
documents and records or place a person in exclusive charge of
the documents and records in the place where they are usually
kept. During the period of control, no person shall remove or
attempt to remove any of the documents and records except
pursuant to a court order or with the consent of the commissioner.
Unless the commissioner has reasonable grounds to believe the
documents or records of a licensee or person have been, or are at
risk of being, altered or destroyed for purposes of concealing a
violation of this chapter, the licensee or owner of the documents
and records shall have access to the documents or records as
necessary to conduct its ordinary business affairs.

end insert

begin insert

begin insert SEC. 5. end insert   

end insert begin insert

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.

end insert

begin delete

SECTION 1.  

Article 24 (commencing with Section 70050) is
added to Chapter 2 of Part 42 of Division 5 of Title 3 of the Education Code, to read:

 

Article 24.  Student Loan Borrowers’ Bill of Rights

 

70050.  

This act shall be known, and may be cited, as the
Student Loan Borrowers’ Bill of Rights.

70051.  

The Legislature finds and declares all of the following:

(a) Student loan debt is a national crisis. More than 40,000,000
people in the United States owe some amount of student
educational loan debt. Total student educational debt in the United
States has crossed the trillion dollar mark. It currently exceeds one
trillion two hundred billion dollars ($1,200,000,000,000),
surpassing both the amount of credit card debt and car loans. With
college costs continuing to rise, student educational debt continues
to rise and there is no reduction in sight.

(b) While California’s financial aid programs are some of the
strongest in the nation and our state’s college graduates have among
the lowest educational debt burdens, California students and
graduates still incur significant debt. According to the Institute for
College Access & Success, 55 percent of California’s graduating
class of 2014 has student educational loan debt. According to the
United States Department of Education, as of January 2015, there
were approximately 4,156,000 student educational loan borrowers
in California, and the total student educational loan debt
outstanding for Californians was about one hundred twelve billion
dollars ($112,000,000,000).

(c) Student educational loan debt is a drag on the state’s
economy, preventing borrowers from achieving financial
independence, buying property, and starting businesses.

(d) Student educational loan servicers administer student loans,
serving as a critical link between borrowers and lenders in
managing accounts, processing payments, and communicating
directly with borrowers. That said, according to the federal
Consumer Financial Protection Bureau (CFPB), there are no
consistent, marketwide federal standards for student educational
loan servicing. Currently, California does not have standards for
student loan servicing.

(e) The CFPB released a report in September 2015 that found
that student educational loan borrowers encounter servicers that
discourage borrower-friendly alternative payment plans, fail to
respond to questions and payment processing errors, and fail to
provide sufficient information to borrowers regarding payments,
benefits, interest rates, and other charges.

(f) Therefore, it is the intent of the Legislature that, as of the
enactment of this act, every student educational loan borrower
receive all of the following rights:

(1) The right to meaningful access to federal affordable
repayment and loan forgiveness benefits for which he or she is
eligible.

(2) The right to reliable information about his or her student
educational loan and loan repayment options.

(3) The right to quality customer service and fair treatment.

70052.  

(a) For purposes of this section, the following terms
have the following meanings:

(1) “Student educational loan” means any loan primarily for
personal use to finance education or other school-related expenses.

(2) “Student loan borrower” means any resident of this state
who has received or agreed to pay a student educational loan, or
any person who shares responsibility with that resident for repaying
the student educational loan.

(3) “Student loan servicer” means, to the extent authorized by
federal law, any entity or person, wherever located, responsible
for the servicing of any student educational loan to any student
loan borrower. Student loan servicer does not include banks or
credit unions.

(b) Student loan servicers shall provide each of their student
loan borrowers with all of the following:

(1) Reliable information about the borrower’s educational loan
and repayment options.

(2) Quality customer service and fair treatment.

(3) Meaningful access to federal affordable repayment and loan
forgiveness benefits available to the borrower.

end delete

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CORRECTIONS:

Digest Text--Page 2.

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