BILL NUMBER: AB 2251 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 13, 2016
AMENDED IN ASSEMBLY MAY 31, 2016
AMENDED IN ASSEMBLY MAY 10, 2016
AMENDED IN ASSEMBLY APRIL 20, 2016
AMENDED IN ASSEMBLY MARCH 28, 2016
INTRODUCED BY Assembly Member Mark Stone
(Coauthors: Assembly Members Dababneh and Gonzalez)
(Coauthor: Senator Leno)
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
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 loans
for borrowers, as those terms are defined, by the
commissioner. commissioner and would define terms for
its purposes. 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.
borrower and comply with reporting, auditing, and other oversight by
the commissioner. The bill would require a person applying for
a license to, among other things, pay the actual costs for
processing an application and the investigation of the application,
an application fee, sign the application under
penalty of perjury, and submit to a criminal background check by the
Department of Justice. By expanding the scope of the crime of perjury
and increasing who is authorized to receive criminal record
information, 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 bases, a
failure to comply with an investigation by the commissioner. The bill
would make legislative findings in support of its provisions.
The bill would require each licensee to pay to the commissioner its
pro rata share of all costs and expenses reasonably incurred in the
administration of these provisions, as estimated by the commissioner,
and would authorize the commissioner to enforce these provisions by,
among other things, promulgating regulations, performi ng
investigations, and enforcing the provisions in a hearing or court,
as specified. The bill would prohibit the public
disclosure of specific information provided by a licensee to the
commissioner.
(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.
(3)Existing constitutional provisions require that a statute that
limits the right of access to the meetings of public bodies or the
writings of public officials and agencies be adopted with findings
demonstrating the interest protected by the limitation and the need
for protecting that interest.
This bill would make legislative findings to that effect.
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
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
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
CHAPTER 1. GENERAL PROVISIONS
Article 1. Short Title
28100. This division may be known and cited as the "California
Student Loan Borrower's Bill of Rights."
Article 2. Requirement for License
28102. 28106. (a) A person shall
only act as a student loan servicer, engage
in the business of servicing a student loan within this state,
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: within this state:
(1) A person authorized to service student loans to borrowers
pursuant to federal law.
(2)
( 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.
(3)
(2) A federally chartered savings and loan association,
federal savings bank, or federal credit union that is authorized to
transact business in this state.
(4)
(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.
(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.
(4) A nonprofit postsecondary educational institution servicing a
student loan it extended to the borrower.
(5) A person who is licensed in good standing pursuant to the
California Finance Lenders Law (Division 9 (commencing with Section
22000)) and services student loans pursuant to Section 22340.
Article 3. Definitions
28104. 28108. For the purposes of
this division, the following terms have the following meanings:
(a) "Applicant" means a person applying for a license pursuant to
this division.
(b) "Borrower" means either of the following:
(1) A person who is a resident of the state who
has received or agreed to pay a student loan.
(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).
(c) "Commissioner" means the Commissioner of Business Oversight.
(d) "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 division, 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. A person shall not be deemed to
control a licensee solely by reason of his or her status as an
officer or director of the licensee.
(e)
(d) "Department" means the Department of Business
Oversight.
(e) "Engage in the business" means 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. "Engage in the business" also means, without
limitation, servicing student loans.
(f) "In this state" means any activity of a person relating to
servicing student loans that originates from this state and is
directed to persons outside this state, or that originates from
outside this state and is directed to persons inside this state, or
that originates inside this state and is directed to persons inside
this state, or that leads to the formation of a contract and the
offer or acceptance thereof is directed to a person in this state,
whether from inside or outside this state and whether the offer was
made inside or outside this state.
(f)
(g) "Licensee" means a natural
person licensed under pursuant to this
division.
(g)
(h) "Person" means a natural person, a sole
proprietorship, an individual, a corporation, a
partnership, a limited liability company, an association, a
trust, a joint venture, an association, a joint
stock company, a trust, an unincorporated organization,
a joint stock company, a government, or a
political subdivision of a government, and any other entity.
(h)
(i) "Qualified written request" means a written
correspondence made by a borrower, other than notice on a payment
medium supplied by a licensee, that is transmitted by
mail, facsimile, or electronically through an email address or
Internet Web site designated by the licensee to receive
communications from borrowers a borrower
that does all of the following:
(1) Enables the licensee to identify the name and account of the
borrower.
(2) Includes, Requests, in sufficient
detail, to the extent applicable, either
any of the following:
(A) Sufficient detail regarding the information
Information sought by the borrower.
borrower, including, but not limited to, a complete
payment history of the student loan or the borrower's account, the
promissory note, and the contact information for the creditor to whom
the student loan is owed.
(B) A statement of the reasons for the belief of the borrower that
there is an error regarding the account of the borrower.
(i)
(j) "Servicing" means any of the following activities
related to a student loan of a borrower:
(1) Performing both of the following:
(A) Receiving any scheduled periodic payments from a borrower or
any notification that a borrower made a scheduled periodic payment.
(B) Applying payments to the borrower's account pursuant to the
terms of the student loan or the contract governing the servicing.
(2) During a period when no payment is required on a student loan,
performing both of the following:
(A) Maintaining account records for the student loan.
(B) Communicating with the borrower regarding the student loan on
behalf of the student loan's holder.
(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).
(j)
(k) "Student loan" means any loan primarily for
personal use to finance a postsecondary
education or other school-related expenses.
and costs of attendance at the postsecondary institution, including,
but not limited to, tuition, fees, books and supplies, room and
board, transportation, and miscellaneous personal expenses.
(k) "Student loan servicer" means, to the extent authorized by
federal law, a person responsible for servicing a student loan for a
borrower.
(l) "Student loan servicer" means any person engaged in the
business of servicing student loans.
CHAPTER 2. LICENSING
Article 1. Commissioner of Business Oversight
28108. 28110. (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.
(c) Without limitation, the functions, powers, and duties of the
commissioner include all of the following:
(1) To issue or refuse to issue a license as provided by this
division.
(2) To revoke or suspend for cause any license as provided by this
division.
(3) To keep records of licenses issued under this division.
(4) To receive, consider, investigate, and act upon complaints
made in connection with a licensee.
(5) To prescribe the forms of and receive (A) applications for
licenses and (B) reports, books, and records required to be made by a
licensee under this division, including annual audited financial
statements.
(6) To subpoena documents and witnesses and compel their
attendance and production, to administer oaths, and to require the
production of books, papers, or other materials relevant to any
inquiry authorized by this division.
(7) To require information with regard to an applicant that the
commissioner may deem necessary, with regard for the paramount public
interest in ascertaining the experience, background, honesty,
truthfulness, integrity, and competency of an applicant for servicing
student loans, and if an applicant is an entity other than an
individual, in ascertaining the honesty, truthfulness, integrity, and
competency of an officer or director of the corporation,
association, or other entity, or the members of a partnership.
(8) To enforce by order any provision of this division.
(9) To levy fees, fines, and charges in an amount sufficient to
cover the cost of the services performed in administering this
division, as set forth by rule.
(10) To appoint examiners, supervisors, experts, and special
assistants as needed to effectively and efficiently administer this
division.
28110. 28112. (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
an applicant 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.
28114. (a) Notwithstanding any other law, the commissioner may by
rule or order prescribe circumstances under which to accept
electronic records or electronic signatures. This section shall not
be deemed to require the commissioner to accept electronic records or
electronic signatures.
(b) For purposes of this section, the following terms have the
following meanings:
(1) "Electronic record" means an initial license application, or
material modification of that license application, and any other
record created, generated, sent, communicated, received, or stored by
electronic means. "Electronic records" also includes, but is not
limited to, all of the following:
(A) An application, amendment, supplement, and exhibit, filed for
any license, consent, or other authority.
(B) A financial statement, report, or advertising.
(C) An order, license, consent, or other authority.
(D) A notice of public hearing, accusation, and statement of
issues in connection with any application, license, consent, or other
authority.
(E) A proposed decision of a hearing officer and a decision of the
commissioner.
(F) The transcripts of a hearing and correspondence between a
party and the commissioner directly relating to the record.
(G) A release, newsletter, interpretive opinion, determination, or
specific ruling.
(H) Correspondence between a party and the commissioner directly
relating to any document listed in subparagraphs (A) to (G),
inclusive.
(2) "Electronic signature" means an electronic sound, symbol, or
process attached to or logically associated with an electronic record
and executed or adopted by a person with the intent to sign the
electronic record.
(c) The Legislature finds and declares that the Department of
Business Oversight has continuously implemented methods to accept
records filed electronically, and is encouraged to continue to expand
its use of electronic filings to the extent feasible, as budget,
resources, and equipment are made available to accomplish that goal.
Article 2. Application for License
28112. (a) Only a natural person is eligible to be an applicant
and be licensed pursuant to this division.
(b)
28116. An applicant shall apply for a license by
submitting all of the following to the commissioner:
(1)
(a) 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.
(b) The sum of one hundred dollars ($100) as a fee for
investigating the application, plus the cost of fingerprint
processing and the criminal history record check under Section 28118,
and two hundred dollars ($200) as an application fee. The
investigation fee, including the amount for the criminal history
record check, and the application fee are not refundable if an
application is denied or withdrawn.
(c) Financial statements prepared in accordance with generally
accepted accounting principles and acceptable to the commissioner
that indicate a net worth of at least two hundred fifty thousand
dollars ($250,000).
28114. 28118. (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
applicant a fee sufficient to cover the costs
of processing the requests pursuant to this section.
28120. (a) Upon the filing of an application for a license
pursuant to Section 28116 and the payment of the fees, the
commissioner shall investigate the applicant and its general partners
and persons owning or controlling, directly or indirectly, 10
percent or more of the outstanding interests or any person
responsible for the conduct of the applicant's servicing activities
within this state, if the applicant is a partnership. If the
applicant is a corporation, trust, limited liability company, or
association, including an unincorporated organization, the
commissioner shall investigate the applicant, its principal officers,
directors, managing members, and persons owning or controlling,
directly or indirectly, 10 percent or more of the outstanding equity
securities or any person responsible for the conduct of the applicant'
s servicing activities within this state.
(b) Upon the filing of an application for a license pursuant to
Section 28130 and the payment of the fees, the commissioner shall
investigate the person responsible for the servicing activity of the
licensee at the new location described in the application. The
investigation may be limited to information that was not included in
prior applications filed pursuant to this division. If the
commissioner determines that the applicant has satisfied this
division and does not find facts constituting reasons for denial, the
commissioner shall issue and deliver a license to the applicant.
(c) For the purposes of this section, "principal officers" shall
mean president, chief executive officer, treasurer, and chief
financial officer, as may be applicable, and any other officer with
direct responsibility for the conduct of the applicant's servicing
activities within the state.
28116. 28122. The commissioner
shall, within 60 days from the date an application pursuant
to Section 28112 when the application is
complete, including having received the information from the
Department of Justice pursuant to Section 28114,
Justice, either grant a license pursuant to this division
or provide a written explanation for the denial.
28118. 28124. (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, an individual specified in Section 28120
within the last 10 years of the date of application,
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 an individual specified in Section 28120
has violated any provision of this division.
28120. 28126. (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.
28122. 28128. A license shall
remain effective until the license is either suspended or revoked by
the commissioner or surrendered by the licensee.
28124. 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.
28126. 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.
CHAPTER 3. LICENSEE DUTIES
28128. 28130. (a)
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.
(b) (1) If a licensee seeks to change its place of business to a
street address other than that designated in its license, the
licensee shall provide notice to the commissioner at least 10 days
prior to the change. The commissioner shall notify the licensee
within 10 days if the commissioner disapproves the change, and if the
commissioner does not notify the licensee of disapproval within 10
days, the change in
address shall be deemed approved.
(2) If notice is not given at least 10 days prior to the change of
a street address of a place of business, as required by subdivision
(b), or notice is not given at least 10 days prior to engaging in
business at a new location, the commissioner may assess a civil or
administrative penalty on the licensee not to exceed five hundred
dollars ($500).
28130. 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.
28132. (a) A licensee seeking to engage in the business of
servicing at a new location shall submit an application for a branch
office license to the commissioner at least 10 days before engaging
in the business of servicing at a new location and pay the fee
required by Section 28116.
(b) The licensee may engage in the business of servicing at the
new location 10 days after the date of submission of a branch office
application.
(c) (1) The commissioner shall approve or deny the person
responsible for engaging in the business of servicing at the new
location in accordance with Article 2 of Chapter 2 (commencing with
Section 28116), and shall notify the licensee of this decision within
90 days of the date of receipt of the application.
(2) If the commissioner denies the application, the licensee
shall, within 10 days of the date of receipt of notification of the
commissioner's denial, submit a new application to the commissioner
designating a different person responsible for engaging in the
business of servicing at the new location. The commissioner shall
approve or deny the different person as provided in paragraph (1).
(d) A licensee shall not engage in business at a new location in a
name other than a name approved by the commissioner.
(e) A branch office license to engage in the business of servicing
at a new location shall be issued in accordance with this section. A
change of street address of a place of business designated in a
license shall be made in accordance with Section 28130 and shall not
constitute a new location subject to the requirements of this
section.
28132. 28134. 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 are 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)
(j) (1) Respond to a qualified
written request by acknowledging receipt of the request within five
business days and within 30 business days provide,
days, to the extent possible, provide
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.
(2) The 30-day period described in paragraph (1) may be extended
for not more than 15 days if, before the end of the 30-day period,
the servicer notifies the borrower of the extension and the reasons
for the delay in responding.
(3) During the 60-business-day period starting on the date the
servicer received a qualified written request related to a dispute on
borrower's payments, a servicer shall not provide adverse
information regarding any payment that is the subject of the
qualified written request to any consumer reporting agency.
(j) (1) Except as provided in federal law or required by a student
loan agreement, a servicer shall inquire of a borrower how to apply
an overpayment to a student loan. A borrower's direction on how to
apply an overpayment to a student loan shall stay in effect for any
future overpayments during the term of a student loan until the
borrower provides different directions.
(2) For purposes of this subdivision, "overpayment" means a
payment on a student loan in excess of the amount due from a borrower
on a student loan on a monthly basis, also commonly referred to as a
prepayment.
28136. (a) 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 15 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 and the number
of the license of the new student loan servicer issued by the
commissioner.
(2) The name and address of the new student loan servicer to whom
subsequent payments or communications are 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 licensee, as 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.
(b) A licensee shall transfer all information regarding a
borrower, a borrower's account, and a borrower's student loan to the
new licensee servicing the borrower's student loan within 45 calendar
days.
28138. A licensee shall notify the commissioner before selling,
assigning, or otherwise transferring the servicing of a student loan
that results in a change in the identity of the party to whom a
borrower is required to send payments or direct any communications
concerning the student loan to, in a manner and time prescribed by
the commissioner.
28134. 28140. 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
Misapply payments made by a borrower to the outstanding
balance of a student loan.
(e) Knowingly or recklessly provide
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.
28136. 28142. 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.
28144. A licensee shall continuously maintain a minimum net worth
of at least two hundred fifty thousand dollars ($250,000).
28146. (a) A licensee shall maintain a surety bond in accordance
with this section in a minimum amount of twenty-five thousand dollars
($25,000). The bond shall be payable to the commissioner and issued
by an insurer authorized to do business in this state. An original
surety bond, including any and all riders and endorsements executed
subsequent to the effective date of the bond, shall be filed with the
commissioner within 10 days of execution. For licensees with
multiple licensed locations, only one surety bond is required. The
bond shall be used for the recovery of expenses, fines, and fees
levied by the commissioner in accordance with this division or for
losses or damages incurred by borrowers as the result of a licensee's
noncompliance with the requirements of this division.
(b) When an action is commenced on a licensee's bond, the
commissioner may require the filing of a new bond. Immediately upon
recovery of any action on the bond, the licensee shall file a new
bond. Failure to file a new bond within 10 days of the recovery on a
bond, or within 10 days after notification by the commissioner that a
new bond is required, constitutes sufficient grounds for the
suspension or revocation of the license.
(c) The commissioner may by rule require a higher bond amount for
a licensee based on the dollar amount of servicing of student loans
by that licensee.
28147. (a) At the time of filing an application for a license
pursuant to this division, an applicant shall deposit with the
commissioner a bond satisfactory to the commissioner in the amount of
at least twenty-five thousand dollars ($25,000). The bond required
by this section shall run to the state for the use of the state and
for any person who has cause against a licensee under any provision
of this division. A deposit given instead of the bond required by
this section shall not be deemed an asset of the applicant or
licensee for the purpose of complying with Section 17210. An
applicant or licensee may obtain an irrevocable letter of credit
approved by the commissioner in lieu of the bond.
(b) An applicant for a license pursuant to this division or a
licensee may, in lieu of and subject to the same conditions as the
bond required by subdivision (a), deposit with the commissioner a
cash bond in the sum specified in subdivision (a). Evidence of the
cash bond shall be a deposit in the amount specified in subdivision
(a) in a bank or investment certificates of industrial loan
companies, authorized to do business in this state and insured by the
Federal Deposit Insurance Corporation, or an investment certificate
or share account in the amount specified in subdivision (a) issued by
a savings and loan association doing business in this state and
insured by the Federal Savings and Loan Insurance Corporation. Those
deposits, certificates, or accounts shall be assigned to and accepted
and maintained by the commissioner, upon those terms as the
commissioner may prescribe, until released by the commissioner, and
shall not be deemed an asset of an applicant or licensee for the
purpose of complying with Section 28144.
(c) The bond shall be conditioned that the licensee will
faithfully conform to and abide by the provisions of this division
and all the rules made by the commissioner under this division. The
bond shall be conditioned that the licensee will honestly and
faithfully apply all funds received, will faithfully and honestly
perform all obligations and undertakings under this division, and
will pay to the state, borrower, and any person all amounts which
become due or owing to the state or to such borrower or person under
the provisions of this division. In determining the liability of the
principal and the sureties under the bond, money held in trust and
any money recovered to restore any deficiency in the trust shall not
be considered as an asset of the liquidation subject to assessment
for the cost of the liquidation. The surety under the bond may pay
the full amount of its liability thereunder to the commissioner in
lieu of payment to the state, borrower, or persons having a cause of
action against the licensee, and upon such payment the surety is
completely released from further liability under the bond.
28148. (a) Each licensee shall pay to the commissioner its pro
rata share of all costs and expenses reasonably incurred in the
administration of this division, as estimated by the commissioner,
for the ensuing year and any deficit actually incurred or anticipated
in the administration of the division in the year in which the
assessment is made. The pro rata share shall be the proportion that a
licensee's servicing activities within this state bears to the costs
and expenses remaining after the amount assessed pursuant to
subdivision (c).
(b) On or before the 30th day of September in each year, the
commissioner shall notify each licensee of the amount assessed and
levied against it and that amount shall be paid by October 31. If
payment is not made by October 31, the commissioner shall assess and
collect a penalty, in addition to the assessment, of 1 percent of the
assessment for each month or part of a month that the payment is
delayed or withheld.
(c) In the levying and collection of the assessment, a licensee
shall neither be assessed for nor be permitted to pay less than two
hundred fifty dollars ($250) per licensed location per year.
(d) If a licensee fails to pay the assessment on or before the
31st day of October, the commissioner may by order summarily suspend
or revoke the license issued to the licensee. If, after an order is
made, a request for hearing is filed in writing within 30 days, and a
hearing is not held within 60 days thereafter, the order is deemed
rescinded as of its effective date. During any period when the
license is revoked or suspended, a licensee shall not engage in the
business of servicing student loans within this state pursuant to
this division except as may be permitted by order of the
commissioner. However, the revocation, suspension, or surrender of a
license shall not affect the powers of the commissioner as provided
in this division.
(e) The commissioner shall, by rule, establish the timelines,
fees, and assessments applicable to applicants for licenses under
this division.
28150. (a) (1) A licensee shall file an annual report with the
commissioner, on or before the 15th day of March, giving the relevant
information that the commissioner reasonably requires concerning the
business and operations conducted by the licensee within the state
during the preceding calendar year. The individual annual reports
filed pursuant to this section shall be made available to the public
for inspection except, upon request in the annual report to the
commissioner, the balance sheet contained in the annual report of a
sole proprietor or any other nonpublicly traded persons. The report
shall be made under oath and in the form prescribed by the
commissioner.
(2) "Nonpublicly traded person" for purposes of this section means
persons with securities owned by 35 or fewer individuals.
(b) A licensee shall make other special reports that may be
required by the commissioner.
28152. 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.
CHAPTER 4. ADMINISTRATION AND POWER OF THE
COMMISSIONER
28153. (a) Notwithstanding any provision of this division, the
commissioner shall have the authority to waive one or more branch
office examinations, if the commissioner deems that the branch office
examinations are not necessary for the protection of the public, due
to the centralized operations of the licensee or other factors
acceptable to the commissioner.
(b) The statement of the findings of an examination shall belong
to the commissioner and shall not be disclosed to anyone other than
the licensee, law enforcement officials, or other state or federal
regulatory agencies for further investigation and enforcement.
Reports required of licensees by the commissioner under this division
and results of examinations performed by the commissioner under this
division are the property of the commissioner.
(c) Affiliates of a licensee are subject to examination by the
commissioner on the same terms as the licensee, but only when reports
from, or examination of, a licensee provides documented evidence of
unlawful activity between a licensee and affiliate benefiting,
affecting, or arising from the activities regulated by this division.
(d) The cost of each examination of a licensee shall be paid to
the commissioner by the licensee examined, and the commissioner may
maintain an action for the recovery of the cost in any court of
competent jurisdiction. In determining the cost of the examination,
the commissioner may use the estimated average hourly cost for all
persons performing examinations of licensees or other persons subject
to this division for the fiscal year.
28154. (a) As often as the commissioner deems necessary and
appropriate, but at least once every 36 months, the commissioner
shall examine the affairs of each licensee for compliance with this
division. The commissioner shall appoint suitable persons to perform
the examination. The commissioner and his or her appointees may
examine the books, records, and documents of the licensee, and may
examine the licensee's officers, directors, employees, or agents
under oath regarding the licensee's operations. The commissioner may
cooperate with any agency of the state, the federal government, or
other state. The commissioner may accept an examination conducted by
one of these entities in place of an examination by the commissioner
under this law, unless the commissioner determines that the
examination does not provide information necessary to enable the
commissioner to fulfill his or her responsibilities under this
division.
(b) The commissioner shall provide a written statement of the
findings of the examination, issue a copy of that statement to each
licensee's principals, officers, or directors, and take appropriate
steps to ensure correction of any violations of this division.
(c) The licensee shall pay, and the commissioner shall assess, the
reasonable expenses of any examination of the licensee and
affiliates.
CHAPTER 4. 5. ENFORCEMENT
28156. (a) The commissioner may, after notice and a reasonable
opportunity to be heard, deny, decline to renew, suspend, or revoke
any license if the commissioner finds that:
(1) The licensee has violated any provision of this division or
any rule or order of the commissioner thereunder.
(2) Any fact or condition exists that, if it had existed at the
time of the original application for the license, reasonably would
have warranted the commissioner in refusing to issue the license
originally.
(b) The power of investigation and examination by the commissioner
is not terminated by the denial, nonrenewal, surrender, suspension,
or revocation of any license issued by him or her.
28158. (a) If a licensee fails to do either of the following, the
commissioner shall impose a penalty in a sum of up to one hundred
dollars ($100) for every day:
(1) To make any report required by law or by the commissioner
within 10 days from the day designated for the making of the report,
or within any extension of time granted by the commissioner.
(2) To include therein any matter required by law or by the
commissioner.
(b) The commissioner may by order summarily suspend or revoke the
license if a licensee fails to file any report required by this
division.
28138. 28160. (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.
(b) If, after investigation, the commissioner has reasonable
grounds to believe that a licensee is conducting business in an
unsafe or injurious manner, the commissioner shall, by written order
addressed to the licensee, direct the discontinuance of the unsafe or
injurious practices. The order shall be effective immediately, but
shall not become final except in accordance with the provisions of
Section 21866.
28162. Whenever, in the opinion of the commissioner, a person is
engaged in the business of servicing student loans within this state,
either actually or through subterfuge, without a license from the
commissioner, the commissioner may order that person to desist and
refrain. If, within 30 days after an order is served, a request for a
hearing is filed in writing and the hearing is not held within 60
days of the filing, the order is rescinded. This section does not
apply to persons exempted under subdivision (b) of Section 28106.
28164. If, after investigation, the commissioner has reasonable
grounds to believe that a licensee has violated its articles of
incorporation or any law or rule binding upon it, the commissioner
shall, by written order addressed to the licensee, direct the
discontinuance of the violation. The order shall be effective
immediately, but shall not become final except in accordance with the
provisions of Section 28166.
28166. (a) No order issued pursuant to this chapter may become
final except after notice to the affected licensee of the
commissioner's intention to make the order final and of the reasons
for the finding. The commissioner shall also notify the licensee that
upon receiving a request, the matter will be set for hearing to
commence within 15 business days after receipt. The licensee may
consent to have the hearing commence at a later date. If no hearing
is requested within 30 days after the mailing or service of the
required notice, and none is ordered by the commissioner, the order
may become final without hearing and the licensee shall immediately
discontinue the practices named in the order. If a hearing is
requested or ordered, it shall be held in accordance with the
provisions of the Administrative Procedure Act (Chapter 5 (commencing
with Section 11500) of Part 1 of Division 3 of Title 2 of the
Government Code), and the commissioner shall have all of the powers
granted under that act. If, upon the hearing, it appears to the
commissioner that the licensee is conducting business in an unsafe
and injurious manner or is violating its articles of incorporation or
any law of this division, or any rule binding upon it, the
commissioner shall make the order of discontinuance final and the
licensee shall immediately discontinue the practices named in the
order.
(b) The licensee has 10 days after an order is made final to
commence an action to restrain enforcement of the order. If the
enforcement of the order is not enjoined within 10 days by the court
in which the action is brought, the licensee shall comply with the
order.
28140. 28168. (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, licensee, an individual
specified in Section 28120, or any person responsible for servicing a
student loan for the 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.
28142. 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.
28170. (a) If, after investigation, the commissioner has
reasonable grounds to believe that a person has engaged or is about
to engage in any act or practice constituting a violation of any
provision of this division or any rule or order hereunder, the
commissioner may bring an action to enjoin the acts or practices or
to enforce compliance with this division or any rule or order adopted
under this division. The action shall be brought in the name of the
people of the State of California in the superior court. Upon a
proper showing, a permanent or preliminary injunction, restraining
order, or writ of mandate shall be granted. A receiver, monitor,
conservator, or other designated fiduciary or officer of the court,
which may include the commissioner, may be appointed for the
defendant or the defendant's assets. Any other ancillary relief may
be granted as appropriate.
A receiver, monitor, conservator, or other designated fiduciary or
officer of the court appointed by the superior court pursuant to
this section may, with the approval of the court, exercise any or all
of the powers of the defendant's officers, directors, partners,
trustees, or persons who exercise similar powers and perform similar
duties. The powers include the filing of a petition for bankruptcy.
No action at law or in equity may be maintained by any party against
the commissioner, or a receiver, monitor, conservator, or other
designated fiduciary or officer of the court, by reason of their
exercising these powers or performing these duties pursuant to the
order of, or with the approval of, the superior court.
(b) If the commissioner determines it is in the public interest,
the commissioner may include in any action authorized by subdivision
(a) a claim for ancillary relief. The ancillary relief may include,
but not be limited to, restitution or disgorgement or damages on
behalf of the persons injured by the act or practice constituting the
subject matter of the action. The court shall have jurisdiction to
award additional relief.
28172. (a) Any person who violates a provision of this division,
or any rule or order under this division, shall be liable for a civil
penalty not to exceed two thousand five hundred dollars ($2,500) for
each violation. This penalty shall be assessed and recovered in a
civil action brought in the name of the people of the State of
California by the commissioner in any court of competent
jurisdiction.
(b) As applied to the penalties for acts in violation of this
division, the remedies provided by this section and by other sections
of this division are not exclusive, and may be sought and employed
in any combination to enforce the provisions of this division.
28174. (a) The commissioner may refer the evidence that is
available concerning any violation of this division or of any rule or
order adopted under this division to the district attorney of the
county in which the violation occurred. The district attorney may,
with or without the commissioner's referral, institute criminal
proceedings under this division. The commissioner and his or her
counsel, deputies, or assistants may, upon request of the district
attorney, assist the district attorney in presenting the law or facts
at the trial.
(b) After an examination, investigation, or hearing under this
division, if the commissioner deems it of public interest or
advantage, he or she may certify a record to the proper prosecuting
official of the county or city in which the act complained of,
examined, or investigated occurred.
28176. All hearings provided for in this division shall be
conducted in accordance with the provisions of Chapter 5 (commencing
with Section 11500) of Part 1 of Division 3 of Title 2 of the
Government Code. The commissioner has all the powers granted therein.
CHAPTER 5. 6. MISCELLANEOUS
28144. 28178. 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.
28146. 28180. The rights and
remedies provided in this division are in addition to any other
rights and remedies provided by law.
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.
SEC. 4. The Legislature finds and declares that
Section 2 of this act, which adds Sections 28150 and 28153 to the
Financial Code, imposes a limitation on the public's right of access
to the meetings of public bodies or the writings of public officials
and agencies within the meaning of Section 3 of Article I of the
California Constitution. Pursuant to that constitutional provision,
the Legislature makes the following findings to demonstrate the
interest protected by this limitation and the need for protecting
that interest:
Protecting from public disclosure limited confidential information
provided by licensees to the Commissioner of Business Oversight
properly balances protecting legitimate private economic interests
and public interests in effective regulation.