Amended in Assembly April 20, 2016

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

An act to begin delete 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, end delete begin insert add Division 12.5 (commencing with Section 28100) to end insert the Financial Code, relating to student loan servicers.

LEGISLATIVE COUNSEL’S DIGEST

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

begin delete

(1) The California Finance Lenders Law

end delete

begin insert (1) end insert begin insert   end insert begin insert Existing law establishes the Department of Business Oversight as headed by the Commissioner of Business Oversight who, among other things, end insert generally provides for the licensure and regulation of persons who are engaged in begin insert various consumer financial businesses, including, but not limited to, end insert the business of making consumer or commercial begin delete loans by the Commissioner of Business Oversight, as specified, and makes a willful violation of its provisions a crime. end delete begin insert loans. end insert

This bill would begin delete expand the California Finance Lenders Law and the authority of the commissioner to include end delete begin insert enact the Student Loan Borrower’s Bill of Rights providing for end insert 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, begin delete and would rename the law the California Finance Lenders Law and Student Loan Borrower’s Bill of Rights. end delete begin insert by the commissioner. end insert The bill would prohibit a person from acting as a student loan servicer without a license, unless exempt from the licensing begin delete requirement. end delete begin insert requirement and would require a licensee to provide specific services to a student loan borrower. end insert 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 begin delete perjury and the basis for a violation of the California Finance Lenders Law, end delete begin insert perjury, end insert 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.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: 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 begin delete College end delete
Institute for College begin insert Access end insert & 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.

begin delete

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

 

end delete

begin delete

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 and the California Student Loan
Borrower’s Bill of Rights.”

end delete

begin delete

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

 

end delete

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Division 12.5 (commencing with Section 28100) is
added to the end insert begin insert Financial Code end insert begin insert , to read: end insert

 

begin insert

Division  begin insert 12.5. end insert   begin insert California Student Loan
Borrower’s Bill of Rights end insert

end insert

 

begin delete 22660. end delete

begin insert 28100. 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.

begin insert

(g) “Qualified written request” means a written correspondence
made by a student loan borrower, other than notice on a payment
medium supplied by the student loan servicer, transmitted by mail,
facsimile, or electronically through an email address or Internet
Web site designated by the student loan servicer to receive
communications from student loan borrowers that does all of the
following:

end insert begin insert

(1) Enables the student loan servicer to identify the name and
account of the student loan borrower.

end insert begin insert

(2) Includes, to the extent applicable, either of the following:

end insert begin insert

(A) Sufficient detail regarding the information sought by the
student loan borrower.

end insert begin insert

(B) A statement of the reasons for the belief of the student loan
borrower that there is an error regarding the account of the student
loan borrower.

end insert begin delete

(g)

end delete

begin insert (h) end insert  “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.

begin delete

(h)

end delete

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

begin delete

(i)

end delete

begin insert (j) end insert  “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).

begin delete

(j)

end delete

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

begin delete

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.

end delete

begin delete 22660.10. end delete

begin insert 28102. 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 delete 22660.15. end delete

begin insert 28104. 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 delete 22660.20. end delete

begin insert 28106. 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. begin delete 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. end delete

(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 delete 22660.25. end delete

begin insert 28108. 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.

begin delete

(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.

end delete begin insert

(8) Provide information on an Internet Web site concerning
affordable repayment and loan forgiveness options that may be
available to the student loan borrower and provide, at least once
per calendar year, a written correspondence or email outlining
those options, if applicable.

end insert begin insert

(9) Appoint a single point of contact for a student loan borrower
wanting any of the following:

end insert begin insert

(A) Ability to enter into an agreement for, resolution on an issue
concerning, or general information about, a repayment option that
requires subsequent submission of supporting documentation.

end insert begin insert

(B) Modification of the terms of repayment of the student
education loan because of hardship.

end insert begin insert

(10) If the sale, assignment, or other transfer of the servicing
of a student education loan results in a change in the identity of
the party to whom the student loan borrower is required to send
payments, or direct any communications concerning the student
education loan to, then the student loan servicer selling, assigning,
or otherwise transferring the servicing shall notify the student loan
borrower in writing at least 45 days before a student loan borrower
is required to send a payment on the student education loan all of
the following:

end insert begin insert

(A) The identity of the new student loan servicer.

end insert begin insert

(B) The name and address of the new student loan servicer to
whom subsequent payments or communications is required to be
sent.

end insert begin insert

(C) The telephone numbers and Internet Web sites of the new
student loan servicer.

end insert begin insert

(D) The effective date of the sale, assignment, or transfer.

end insert begin insert

(E) The date on which the current student loan servicer will
stop accepting payments on the student education loan.

end insert begin insert

(F) The date on which the new student loan servicer will begin
accepting payments on the student education loan.

end insert begin insert

(11) Respond to a qualified written request by acknowledging
receipt of the request within five business days and within 30
business days provide, to the extent possible, by providing
information relating to the request and the applicable action the
student loan servicer will take to correct the account or an
explanation for the reasons the student loan servicer believes the
account of the student loan borrower is correct.

end insert begin insert

(12) Unless otherwise directed by the student loan borrower of
a student education loan, upon receipt of a payment, the student
loan servicer shall apply amounts in excess of the minimum
payment amount first to the interest and fees owed on the payment
due date, next to the principal balance of the student education
loan balance bearing the highest annual percentage rate, and then
to each successive interest and fees and principal balance bearing
the next highest annual percentage rate, until the payment is
exhausted. A student loan borrower may instruct or expressly
authorize the student loan servicer to apply excess payments in a
different manner. A student loan borrower may also voluntarily
increase the periodic payment amount by, including, but not limited
to, increasing his or her recurring electronic payment with the
right to return to their original amortization schedule at any time.

end insert begin delete

(c)

end delete

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

begin delete 22660.30. end delete

begin insert 28110. 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 delete 22660.35. end delete

begin insert 28112. 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, begin delete altered end delete begin insert altered, end insert 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.

begin insert

begin insert 28114. end insert   

(a) If it appears to the commissioner that a licensee is
violating or failing to comply with any law of this state, the
commissioner may direct the licensee to comply with the law by
an order issued under the commissioner’s official seal, or if it
appears to the commissioner that any licensee is conducting its
business in an unsafe or injurious manner, the commissioner may,
in like manner, direct it to discontinue the unsafe or injurious
practices. The order shall require the licensee to show cause before
the commissioner, at a time and place to be fixed by the
commissioner, as to why the order should not be observed.

(b) If, upon any hearing held pursuant to subdivision (a), the
commissioner finds that the licensee is violating or failing to
comply with any law of this state or is conducting its business in
an unsafe or injurious manner, the commissioner may make a final
order directing it to comply with the law or to discontinue the
unsafe or injurious practices. A licensee shall comply with the
final order unless, within 10 days after the issuance of the order,
its enforcement is restrained in a proceeding brought by the
licensee.

end insert begin insert

begin insert 28116. end insert   

(a) The commissioner may issue an order suspending
or revoking a license, or taking possession of and placing a
licensee in receivership, if after notice and an opportunity for
hearing, the commissioner finds any of the following:

(1) The licensee is violating this division, a regulation adopted
or an order issued under this division, or a condition of approval
issued under this division.

(2) The licensee does not cooperate with an examination or
investigation by the commissioner.

(3) The licensee engages in fraud, intentional misrepresentation,
or gross negligence in servicing a student education loan.

(4) The competence, experience, character, or general fitness
of the licensee, or any director, officer, employee, or person in
control of a licensee, indicates that it is not in the public interest
to permit the student loan servicer to continue to providing
servicing of student education loans.

(5) The licensee engages in an unsafe or unsound practice.

(6) The licensee is insolvent, suspends payment of its obligations,
or makes a general assignment for the benefit of its creditors.

(7) Any fact or condition exists that, if it had existed at the time
when the licensee applied for its license, would have been grounds
for denying the application.

(b) In determining whether a licensee is engaging in an unsafe
or unsound practice, the commissioner may consider the size and
condition of the licensee’s provision of student education loan
servicing, the magnitude of the loss, the gravity of the violation of
this division, and the previous conduct of the persons involved.

end insert begin insert

begin insert 28118. end insert   

The commissioner may assess a civil penalty against
a person that violates this division or a regulation adopted or an
order issued pursuant to this division in an amount not to exceed
one thousand dollars ($1,000) for each violation or, in the case
of a continuing violation, one thousand dollars ($1,000) for each
day or part thereof during which the violation continues, plus this
state’s costs and expenses for the investigation and prosecution
of the matter, including, but not limited to, reasonable attorney’s
fees.

end insert

begin delete SEC. 5. end delete

begin insert SEC. 3. end 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.