BILL NUMBER: AB 2251 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MARCH 28, 2016
INTRODUCED BY Assembly Member Mark Stone
FEBRUARY 18, 2016
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. 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.
LEGISLATIVE COUNSEL'S DIGEST
AB 2251, as amended, Mark Stone. Student Loan Borrowers'
Bill of Rights. Student loan servicers: licensing and
regulation: Student Loan Borrower's Bill of Rights.
(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.
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.
(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.
This bill would provide that no reimbursement is required by this
act for a specified reason.
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.
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.
Vote: majority. Appropriation: no. Fiscal committee: no
yes . State-mandated local program: no
yes .
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. 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
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.
(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.
(c) Student educational loan debt is a hindrance 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. 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.
(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) It is the intent of the Legislature to promote all of the
following:
(1) Meaningful access to federal affordable repayment and loan
forgiveness benefits.
(2) Reliable information about student educational loans and loan
repayment options.
(3) Quality customer service and fair treatment.
SEC. 2. The heading of Division 9 (commencing with
Section 22000) of the Financial Code is
amended to read:
DIVISION 9. CALIFORNIA FINANCE LENDERS LAW AND THE
CALIFORNIA STUDENT LOAN BORROWER'S BILL OF RIGHTS
SEC. 3. Section 22000 of the Financial
Code is amended to read:
22000. This division is known and may be cited as the "California
Finance Lenders Law." Law and the California
Student Loan Borrower's Bill of Rights. "
SEC. 4. Chapter 3.5 (commencing with Section
22660) is added to Division 9 of the Financial Code
, to read:
CHAPTER 3.5. CALIFORNIA STUDENT LOAN BORROWER'S BILL OF RIGHTS
22660. 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.
22660.5. 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.
22660.10. (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.
22660.15. (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.
22660.20. (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.
22660.25. (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.
22660.30. (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.
22660.35. (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.
SEC. 5. 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.
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.
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Digest Text--Page 2.
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