Amended in Assembly May 10, 2016

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

begin insert

(Coauthor: Assembly Member Dababneh)

end insert begin insert

(Coauthor: Senator Leno)

end insert

February 18, 2016

An act to add Division 12.5 (commencing with Section 28100) to 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.

(1) Existing law establishes the Department of Business Oversight as headed by the Commissioner of Business Oversight who, among other things, generally provides for the licensure and regulation of persons who are engaged in various consumer financial businesses, including, but not limited to, the business of making consumer or commercial loans.

This bill would enact the Student Loan Borrower’s Bill of Rights providing for the licensure, regulation, and oversight of student loan servicers engaging in the servicing of student begin delete education end delete loans for begin delete student loan end delete borrowers, as those terms are defined, by the commissioner. The bill would prohibit a person from acting as a student loan servicer without a license, unless exempt from the licensing requirement and would require a licensee to provide specific services to a student loan borrower. The bill would require a person applying for a license to, among other things, begin delete pay an unspecified fee to end delete pay the actual costs for begin insert processing an application and end insert the investigation of the application begin delete and to end delete begin insert , end insert sign the application under penalty of perjury begin insert , and submit to a criminal background check by the Department of Justice end insert . By expanding the scope of the crime of perjury begin insert and increasing who is authorized to receive criminal record information 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 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 4,156,00 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.  

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

 

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

 

begin insert

Chapter   begin insert 1. end insert begin insert General Provisions end insert

end insert

 

begin insert

Article begin insert 1. end insert   begin insert Short Title end insert

end insert

 

begin insert

begin insert 28100. end insert   

This division may be known and cited as the “California
Student Loan Borrower’s Bill of Rights.”

end insert

 

begin insert

Article begin insert 2. end insert   begin insert Requirement for License end insert

end insert

 

begin insert

begin insert 28102. end insert   

(a) A person shall only act as a student loan servicer,
directly or indirectly, as a licensee pursuant to this division. A
license shall not be transferable or assignable.

(b) Notwithstanding subdivision (a), any of the following shall
not be required to be a licensee to engage in servicing a student
loan to borrowers:

(1) A person authorized to service student loans to borrowers
pursuant to federal law.

(2) 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.

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

(4) 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.

(5) 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.

end insert

 

begin insert

Article begin insert 3. end insert   begin insert Definitions end insert

end insert

 

begin delete 28100. end delete

begin insert 28104. end insert   

For the purposes of this begin delete chapter, end delete begin insert division, end insert the following
terms begin delete shall end delete have the following meanings:

begin insert

(a) “Applicant” means a person applying for a license pursuant
to this division.

end insert begin insert

(b) “Borrower” means either of the following:

end insert begin insert

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

end insert begin insert

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

end insert begin insert

(c) “Commissioner” means the Commissioner of Business
Oversight.

end insert begin delete

(a)

end delete

begin insert (d) end insert  “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 begin delete chapter, end delete begin insert division, end insert 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. begin delete No end delete begin insert A end insert person
shall begin insert not end insert be deemed to control a licensee solely by reason of his
or her status as an officer or director of the licensee.

begin delete

(b)

end delete

begin insert (e) end insert  “Department” means the Department of Business Oversight.

begin delete

(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.

end delete begin delete

(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.

end delete begin delete

(e)

end delete

begin insert ( end insert begin insert f) end insert  “Licensee” means a begin insert natural end insert person licensed under this

begin delete chapter. end delete begin insert division. end insert

begin delete

(f)

end delete

begin insert (g) end insert  “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 delete

(g)

end delete

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

(1) Enables the begin delete student loan servicer end delete begin insert licensee end insert to identify the
name and account of the begin delete student loan end delete borrower.

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

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

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

begin delete

(h)

end delete

begin insert (i) end insert  “Servicing” means any of the following begin delete activities: end delete begin insert activities
related to a student loan of a borrower: end insert

(1)  begin delete Receiving end delete begin insert Performing both of the following: end insert

begin insert (A) end insert begin insert   end insert begin insert Receiving end insert any scheduled periodic payments from a begin delete student
loan end delete borrower begin delete pursuant to the terms of a student education loan. end delete

begin insert or any notification that a borrower made a scheduled periodic
payment. end insert

begin delete

(2)

end delete

begin insert (B) end insert  Applying begin delete the end delete payments begin delete 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. end delete begin insert to the borrower’s account pursuant to the terms
of the student loan or the contract governing the servicing. end insert

begin delete

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

end delete begin insert

(2) During a period when no payment is required on a student
loan, performing both of the following:

end insert begin insert

(A) Maintaining account records for the student loan.

end insert begin insert

(B) Communicating with the borrower regarding the student
loan on behalf of the student loan’s holder.

end insert begin insert

(3) Interactions with a borrower, including, but not limited to,
activities to help prevent default on obligations arising from a
student loan or conducted to facilitate the activities described in
paragraph (1) or (2).

end insert begin delete

(i)

end delete

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

begin delete

(j) “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).

end delete

(k) “Student loan servicer” means, to the extent authorized by
federal law, a begin delete person, wherever located, end delete begin insert person end insert responsible for begin delete the end delete
servicing begin delete of end delete a student begin delete educational end delete loan for a begin delete student loan end delete borrower.

begin delete

28102.  

(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.

28104.  

(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.

28106.  

(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.

(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.

28108.  

(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.

(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.

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

(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.

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

(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:

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

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

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

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

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

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

(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.

(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.

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

28110.  

(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.

28112.  

(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.

28114.  

(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.

28116.  

(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.

28118.  

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 delete

 

begin insert

Chapter   begin insert 2. end insert begin insert Licensing end insert

end insert

 

begin insert

Article begin insert 1. end insert   begin insert Commissioner of Business Oversight end insert

end insert

 

begin insert

begin insert 28108. end insert   

(a) The commissioner shall administer the provisions
of this division.

(b) The commissioner may promulgate regulations and issue
orders to further the purposes of this division.

end insert begin insert

begin insert 28110. end insert   

(a) The commissioner shall have the authority to
conduct investigations and examinations of an applicant or licensee
as follows:

(1) For purposes of determining whether an applicant is eligible
for a license, or that a licensee is complying with the provisions
of this division or any regulation or order of the commissioner,
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
intent to, or the practice of, servicing student loans for borrowers:

(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 division, the commissioner may direct, subpoena,
or order the attendance of, and examine under oath, any person
whose testimony may be required about the student loan or account
of the 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 have been, or are at risk of
being, altered or destroyed for purposes of concealing a violation
of this division, 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.

(c) The commissioner may charge an applicant or a licensee
the actual costs for conducting an examination pursuant to this
division.

end insert

 

begin insert

Article begin insert 2. end insert   begin insert Application for License end insert

end insert

 

begin insert

begin insert 28112. end insert   

(a) Only a natural person is eligible to be an applicant
and be licensed pursuant to this division.

(b) An applicant shall apply for a license by submitting all of
the following to the commissioner:

(1) A completed application for a license in a form prescribed
by the commissioner and signed under penalty of perjury.

(2) A license fee determined by the commissioner that is
reasonable to pay the department’s actual costs to process and
investigate the application.

end insert begin insert

begin insert 28114. end insert   

(a) The commissioner shall submit to the Department
of Justice fingerprint images and related information required by
the Department of Justice of every applicant for a license pursuant
to Section 28112, for purposes of obtaining information as to the
existence and content of a record of state or federal convictions,
state or federal arrests, and information as to the existence and
content of a record of state or federal arrests for which the
Department of Justice establishes that the person is free on bail
or on his or her own recognizance pending trial or appeal.

(b) When received, the Department of Justice shall forward to
the Federal Bureau of Investigation requests for federal summary
criminal history information received pursuant to this section. The
Department of Justice shall review the information returned from
the Federal Bureau of Investigation and compile and disseminate
a response to the commissioner.

(c) The Department of Justice shall provide a response to the
commissioner pursuant to paragraph (1) of subdivision (p) of
Section 11105 of the Penal Code.

(d) The commissioner shall request from the Department of
Justice subsequent arrest notification service, as provided pursuant
to Section 11105.2 of the Penal Code, for the license applicant
described in subdivision (a).

(e) The Department of Justice shall charge the department a
fee sufficient to cover the costs of processing the requests pursuant
to this section.

end insert begin insert

begin insert 28116. end insert   

The commissioner shall, within 60 days from the date
an application pursuant to Section 28112 is complete, including
having received the information from the Department of Justice
pursuant to Section 28114, either grant a license pursuant to this
division or provide a written explanation for the denial.

end insert begin insert

begin insert 28118. end insert   

(a) 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.

(b) The commissioner may deny an application for a license for
any of the following reasons:

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

(2) The applicant or a person with control over the applicant,
within the last 10 years of the date of application, has committed
any act involving dishonesty, fraud, or deceit, or has been
convicted of, or pleaded nolo contendere to, a crime substantially
related to the qualifications, functions, or duties related to
servicing.

(3) The applicant or a person with control over the applicant
has violated any provision of this division.

end insert begin insert

begin insert 28120. end insert   

(a) 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.

(b) 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 commissioner sent the written
request for information, the commissioner shall deem the
application abandoned.

(c) An application 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.

end insert begin insert

begin insert 28122. end insert   

A license shall remain effective until the license is either
suspended or revoked by the commissioner or surrendered by the
licensee.

end insert begin insert

begin insert 28124. end insert   

The commissioner may suspend or revoke a license
issued under this division if the commissioner finds that the licensee
violated any provision of this division or if any fact or condition
exists that, if it had existed at the time of the initial application for
the license, clearly would have warranted a denial of the license.

end insert begin insert

begin insert 28126. end insert   

A licensee that ceases to service student loans to
borrowers shall inform the commissioner in writing and surrender
the license and all other indicia of license to the commissioner.
The commissioner may require a licensee to file a plan for the
disposition of the servicing business that includes, but is not limited
to, a closing audit. Upon receipt of the written notice and plan, if
required, the commissioner shall determine whether the licensee
has violated this division. The commissioner shall give a licensee
notice of accepting a surrendered license, and a license shall not
be deemed surrendered until the commissioner accepts its tender
in writing.

end insert

 

begin insert

Chapter   begin insert 3. end insert begin insert Licensee Duties end insert

end insert

 

begin insert

begin insert 28128. end insert   

A 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 or incomplete.

end insert begin insert

begin insert 28130. end insert   

A licensee shall only provide servicing at the place of
business on the license. A licensee shall obtain prior written
permission from the commissioner to add or change business
locations authorized to operate under the license.

end insert begin insert

begin insert 28132. end insert   

A licensee shall do all of the following:

(a) Maintain staff adequate to meet the requirements of this
division and every regulation and order of the commissioner.

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

(c) Comply with the provisions of this division and any
regulation or order of the commissioner.

(d) Submit to periodic examination by the commissioner as
required by this division and any regulation or order of the
commissioner.

(e) Advise the commissioner of filing a petition for bankruptcy
within five days of the filing.

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

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

(h) Provide information on a publicly accessible Internet Web
site concerning affordable repayment and loan forgiveness options
that may be available to borrowers and provide to borrowers, at
least once per calendar year, a written correspondence or email
describing those options, as applicable.

(i) Appoint a single point of contact for a borrower wanting
any of the following:

(1) 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.

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

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

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

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

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

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

(5) The date on which the current student loan servicer will stop
accepting payments on the borrower’s student loan.

(6) The date on which the new student loan servicer will begin
accepting payments on the borrower’s student loan.

(k) 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, information relating
to the request and the applicable action the licensee will take to
correct the account or an explanation for the licensee’s position
that the borrower’s account is correct.

(l) Unless otherwise directed by the borrower of a student loan,
upon receipt of a payment, the licensee 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 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 borrower may instruct or expressly
authorize a licensee to apply excess payments in a different
manner. A borrower may also voluntarily increase the periodic
payment amount by various means, including, but not limited to,
increasing his or her recurring electronic payment with the right
to return to the original amortization schedule at any time.

end insert begin insert

begin insert 28134. end insert   

The licensee shall not do any of the following:

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

(b) Engage in any unfair or deceptive practice toward any
borrower or misrepresent or omit any material information in
connection with the servicing of a student 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 loan, the terms
and conditions of the student loan agreement, or the borrower’s
obligations under the student loan.

(c) Obtain property of a borrower by fraud or misrepresentation.

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

(e) Knowingly or recklessly provide inaccurate information to
a credit bureau regarding a borrower.

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

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

(h) 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.

end insert begin insert

begin insert 28136. end insert   

The licensee shall retain and maintain its records of
servicing a borrower’s student loan for a minimum of three years
after the student loan has been transferred, assigned, or paid in
full.

end insert

 

begin insert

Chapter   begin insert 4. end insert begin insert Enforcement end insert

end insert

 

begin insert

begin insert 28138. end insert   

(a) If the commissioner has a reasonable basis to
believe that a licensee is violating or failing to comply with any
law of this state, including, but not limited to, this division or any
regulation or order of the commissioner, or servicing student loans
in an unsafe or injurious manner, then the commissioner may
direct the licensee to comply with the law by an order issued by
the commissioner. 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 this section, the
commissioner finds that the licensee is violating or failing to
comply with any law of this state or servicing student loans in an
unsafe or injurious manner, the commissioner may make a final
order directing the licensee to comply with the law or 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 28140. end insert   

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

(1) The licensee is violating this division or a regulation adopted
or an order 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 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 licensee to continue servicing student 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
the licensee applied for the 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 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 28142. end insert   

The commissioner may assess a civil penalty against
a person that violates this division, or a regulation promulgated
or order issued by the commissioner 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 the department’s actual costs and
expenses for the investigation and prosecution of the matter,
including, but not limited to, reasonable attorney’s fees.

end insert

 

begin insert

Chapter   begin insert 5. end insert begin insert Miscellaneous end insert

end insert

 

begin insert

begin insert 28144. end insert   

If any provision of this division or the application
thereof to any person or circumstances is held invalid, illegal, or
unenforceable, such invalidity, illegality, or unenforceability shall
not affect other provisions or applications of this division which
can be given effect without the invalid, illegal, or unenforceable
provision or application, and, to this end, the provisions of this
division are declared to be severable.

end insert begin insert

begin insert 28146. end insert   

The rights and remedies provided in this division are
in addition to any other rights and remedies provided by law.

end insert

SEC. 3.  

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.