BILL ANALYSIS Ó
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Date of Hearing: April 18, 2016
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
AB 2251
(Mark Stone) - As Amended March 28, 2016
SUBJECT: Student loan servicers: licensing and regulation:
Student Loan Borrower's Bill of Rights
SUMMARY: Establishes the Student Loan Borrower's Bill of Rights
under the California Finance Lenders Law (CFLL) and requires
servicers of student loans to get a license from the Department of
Business Oversight (DBO). Specifically, this bill:
1)Requires a licensee to provide a student loan borrower with all
of the following:
a) Accurate information about all the student education loan
repayment options applicable to the student loan borrower;
b) Quality customer service and fair treatment; and,
c) Complete and accurate information on federal affordable
repayment and loan forgiveness benefits applicable to the
student loan borrower;
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2)Specifies that a person shall not act as a student loan
servicer, directly or indirectly, without a license from the
Commissioner of DBO (Commissioner).
3)Exempts from licensing
a) 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;
b) A federally chartered savings and loan association,
federal savings bank, or federal credit union that is
authorized to transact business in this state;
c) 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; and,
d) 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)Prohibits a licensee from engaging in servicing a student
education loan as a student loan servicer under a name other
than the name that appears on a license.
5)Allows the Commissioner to promulgate regulations on the
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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 licensing requirements.
6)Requires a licensee to 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.
7)Provides that 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:
a) The person filed a complete application for a license in a
form prescribed by the Commissioner;
b) The person signed the application under penalty of
perjury;
c) The person made a payment of a reasonable fee (currently
the amount of the fee is blank) to pay the actual costs for
the department to investigate the application; and,
d) The DBO has completed an investigation of the application.
8)Specifies that the Commissioner may deny an application of a
person to engage in business as a student loan servicer for any
of the following reasons:
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a) The person made a false statement of a material fact on
the application;
b) 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; or,
c) 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.
9)Requires the Commissioner, 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 a license
denial.
10)Allows the Commissioner to suspend or revoke a license issued
under this chapter if the Commissioner finds that the licensee
violated any provision of this chapter or if any fact or
condition exists which, if it had existed at the time of the
initial application for the license, clearly would have
warranted a denial of the license. The Commissioner shall not
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refund a license fee if the license is surrendered, revoked, or
suspended prior to the expiration of the period for which it was
issued.
11)Specifies that 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.
12)Requires a licensee shall do all of the following:
a) Maintain staff adequate to meet the requirements of this
chapter, as prescribed by regulation or 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 chapter, and with any
regulation or order of the Commissioner;
d) Submit to periodic examination by the Commissioner as
required by this chapter;
e) 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;
f) Comply with all applicable state and federal laws and tax
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return filing requirements; and,
g) Comply with any other requirement established by
regulation or order of the Commissioner.
13)Prohibits a licensee from doing any of the following:
a) Directly or indirectly employ any scheme, device, or
artifice to defraud or mislead a student loan borrower;
b) 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;
c) Obtain property of a student loan borrower by fraud or
misrepresentation;
d) Knowingly misapply or recklessly apply payments made by a
student loan borrower to the outstanding balance of a student
education loan;
e) Knowingly or recklessly provide inaccurate information to
a credit bureau regarding a student loan borrower;
f) Fail to report both the favorable and unfavorable payment
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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;
g) 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; or
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, DBO, or another governmental agency.
14)Allows the Commissioner to conduct investigations and
examinations as follows:
a) 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:
i) Criminal, civil, and administrative history
information;
ii) Personal history and experience information,
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including, but not limited to, independent credit reports
obtained from a consumer credit reporting agency; and,
iii) 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.
15)Provides for the following definitions:
a) "Control" means the possession, directly or indirectly, of
the power to direct, or cause the direction of, the
management and policies of a licensee under this chapter,
whether through voting or through the ownership of voting
power of an entity that possesses voting power of the
licensee, or otherwise. Control is presumed to exist if a
person, directly or indirectly, owns, controls, or holds 10
percent or more of the voting power of a licensee or of an
entity that owns, controls, or holds, with power to vote, 10
percent or more of the voting power of a licensee. No person
shall be deemed to control a licensee solely by reason of his
or her status as an officer or director of the licensee.
b) "Department" means the DBO.
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.
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d) "In this state" includes any activity of a person relating
to servicing a student education loan that is directed to a
person residing in the state.
e) "Licensee" means a person licensed under this chapter.
f) "Person" means a natural person, a sole proprietorship, a
corporation, a partnership, a limited liability company, an
association, a trust, a joint venture, an unincorporated
organization, a joint stock company, a government, or a
political subdivision of a government, and any other entity.
g) "Servicing" means any of the following activities:
i) Receiving any scheduled periodic payments from a
student loan borrower pursuant to the terms of a student
education loan.
ii) Applying the payments of principal and interest and
other payments with respect to the amounts received from a
student loan borrower, as may be required pursuant to the
terms of a student education loan.
iii) Performing other administrative services with respect
to a student education loan.
h) "Student education loan" means any loan primarily for
personal use to finance education or other school-related
expenses.
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i) "Student loan borrower" means either of the following:
i) A person who is a resident of the state who has
received or agreed to pay a student education loan.
ii) A person who is a resident of the state who shares
responsibility for repaying a student education loan with a
person described in paragraph (1).
j) "Student loan servicer" means, to the extent authorized
by federal law, an entity or person, wherever located,
responsible for the servicing of a student educational loan
for a student loan borrower. "Student loan servicer" shall
not include a bank or credit union.
EXISTING LAW: Provides for the CFLL, administered by DBO, which
authorizes the licensure of finance lenders, who may make secured
and unsecured consumer and commercial loans (Financial Code
Sections 22000 et seq.).
FISCAL EFFECT: Unknown
COMMENTS:
According to the author,
Student loan debt in America has become a national crisis.
Total student debt exceeds $1.2 trillion, surpassing both the
amount of credit card debt and car loans. In California alone
there are 4,156,000 student loan borrowers with debt totaling
$1.2 billion. High levels of student debt negatively affect the
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saving and spending habits of the individual and have negative
effects on the greater economy.
Students graduating with high levels of student must delay or
forgo starting new households, buying new homes, investing in
further education, taking entrepreneurial risks, and returning
to rural areas.
Student loan servicers serve as a critical link between borrower
and lenders: they manage accounts, process payments, and
communicate directly with borrowers. According to the federal
Consumer Finance Protection Bureau, there are no consistent
market-wide federal standards for student loan servicing.
California should be one of the first states to enact statewide
student loan servicing regulation by creating a student loans
servicer licensure program. With so many Californians
struggling to repay their loans or defaulting on their loans, it
is important that the state ensures that servicers communicate
effectively with consumers on repayment programs and helps
remove industry-created barriers to repayment. In creating
this licensure requirement, California will take a necessary
step to protect student loan borrowers. Licensure will create
accountability from the servicer to the consumer and provide
oversight of the servicing industry.
Student loan options
There are four types of postsecondary education loans. Direct
Loans are federal loans made directly to borrowers by Department
of Education (DOE) through the William D. ford Federal Direct Loan
program. Federal Family Education Loan Program (FFELP) loans were
originated by private lenders and guaranteed by the federal
government. Federal Perkins Loans are co-funded by higher
education institutions and the federal government and are
originated and administered by the education institutions.
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Federal law ended new originations of FFELP loans in 2010 but many
remain outstanding. Private student loans are made by depository
and non-depository financial institutions, states, institutions of
higher education, and other entities. These loans and their
servicing come with varying levels of consumer protections.
Student loan debt
Student loan debt is the second highest outstanding consumer debt
in the United States, second only to mortgage debt. Nationwide
student loan debt is $1.2 trillion with an average debt balance of
$29,000. California ranks relatively well compared to the other
states on the average student loan debt per student. However,
even with a low ranking on the debt scale a California student
will rack up an average of $21,383 in public education institution
debt. Data is unclear on how much private education debt may add
to the average per student but private education debt overall is
on the rise from a $55.9 billion in 2005 to $140.2 billion in 2011
and in large part fueled by the reselling of loans on the
secondary market in a system very similar to mortgage funding and
asset backed securities (The High Economic and Social Costs of
Student Loan Debt, CNBC. June 15, 2015) According to the Wall
Street Journal, Congratulations, Class of 2015: You're the Most
Indebted Ever, May 2015, not only is average debt rising but the
number of students taking out loans is also on the rise with 71%
of bachelor's degree recipients taking out loans, double the
number two decades ago.
This growing trend toward increasing the use of loans for
education financing is taking a toll on graduates. For example,
homeownership rates are dropping among people under the age of 35.
Some of this may be related to the fact that mortgage lenders
must look at all sources of debt, including student loans and this
debt can either delay homeownership or require the borrower to
reduce their housing expectations. National Association of
Realtors has found that over half of potential first time buyers
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that are having trouble saving for a down payment for house are
have trouble due to student loan debt. According to CNBC student
loan default rates stand around 13-15% with the average amount of
default at $14,000 while the default rates for some private-for
profit schools is at 30%. A recent report from the Wall Street
Journal, More Than 40% of Student Borrowers Aren't Making
Payments, April 7, 2016 found:
1)40% of Americans who borrowed from the Government's main
student-loan program aren't making payments or are behind on
more than $200 billion owed.
2)One in six borrowers (3.6 million) were in default on $56
million in student debt.
3)Three million borrowers owing almost $110 billion were in
forbearance or deferment.
The costs of education is obviously on the rise and loans are
filling a greater portion of the financing options. As the use of
loans increases the levels of student financial literacy remain
for the most part, dismal. A decade ago the biggest obstacle for
students entering college was the potential draw of credit card
offers that could lead to thousands of dollars on debt. With
rising college costs the addition of more student loans is adding
tens of thousands of dollars in debt. Twenty somethings reaching
for the dream of a bachelor's degree are able to run up massive
debt with little understanding of how to even balance a checkbook.
A survey on student loans by Citizens Bank reveals that recent
college graduates are lacking in basic details about their loan
debt. For example, 45% didn't know what percentage of their
salary went to paying off their loans. Another 37% were unaware
of the interest rate on their loan and 59% did not know how long
it would take to pay off their loans.
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Student loan servicing
The Consumer Financial Protection Bureau (CFPB) released a report,
Student Loan Servicing: Analysis of Public Input and
Recommendations for Reform, in September of 2015.
The report indicated that consumers with federal and private
student loans report a range of problems around servicers making
mistakes, records getting lost, payments being processed too
slowly, or servicer personnel not having the latest information
about a consumer's account. Borrowers report that these issues
include:
1)Poor customer service and bad information causing borrowers
distress: Borrowers report problems accessing basic account
information, receiving conflicting information about repayment
programs and loan features, and receiving inaccurate billing
statements. When errors occur, borrowers report problems getting
them resolved and a lack of recourse.
2)Servicing transfers leading to surprise fees and lost benefits:
More than 10 million borrowers have had their servicer change in
the past five years. Consumers and industry report, however,
that servicing transfers can create confusion when companies
have different policies and procedures related to payment
posting, allocation, and processing, as well as the
administration of certain borrower benefits. When servicers
change, payments may be lost, consumers may incur surprise late
fees, and processing problems and missing account records can
knock borrowers off track on repaying their loans.
3)Roadblocks to refinance keeping borrowers tied to high-rate
loans: Borrowers seeking to refinance student loans often depend
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on their current servicer to provide accurate and timely
information about how to pay off their student loans. Public
comments from borrowers and from student loan refinancing
companies describe payoff problems, including inaccurate payoff
statements, surprise bills demanding extra payments, and
customer service confusion that increases costs for borrowers,
lenders, and servicers.
4)Co-signer policies causing auto-defaults and borrower distress:
Private student loan borrowers continue to report serious
financial distress when a company unexpectedly puts their loan
in default status. These borrowers report paying on time each
month, only to discover that their loan has been placed into
default and sent to a debt collector following the death or
bankruptcy of a co-signer, causing damage to their credit.
5)Payment processing practices increasing fees and penalizing
borrowers: Borrowers expect servicers to process monthly
payments and apply them to the loans in their account correctly,
in a timely manner and without needlessly increasing costs.
Other issues reported to the CFPB include:
1)Servicing failures may contribute to millions of distressed
borrowers defaulting: The U.S. DOE offers numerous plans to
borrowers with federal student loans to make payments more
affordable. These include options that let borrowers set their
monthly payment based on their income. Millions of borrowers may
not be receiving important information about repayment options
or may encounter breakdowns when attempting to enroll. Borrowers
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report servicers steering them into forbearance or other
short-term options that, while appropriate for some borrowers,
may increase costs and may not be in the consumer's best
interest. Others told of servicers providing conflicting or
inaccurate information, preventing them from accessing tools to
avert default.
2)Sloppy practices boosting costs and causing distressed borrowers
to lose critical protections: Consumers enrolled in an
income-based repayment plan must recertify for the program on a
yearly basis. Recent data sources suggest that three in five
borrowers in income-driven repayment plans do not recertify on
time although they are eligible. Borrowers report that
inadequate renewal notices can contribute to the missed
deadlines.
3)Debt relief scams targeting distressed borrowers: Problems with
servicing can leave distressed borrowers without the tools to
help them avoid default. Student debt relief scams prey on these
borrowers, charging up-front fees while promising to enroll
borrowers in free federal consumer protections, including
income-driven repayment plans.
4)Student loan servicing can affect certain special populations,
such as servicemembers, veterans, and older consumers, at an
increased level due to unique circumstances associated with
these individuals. Servicing practices hindering servicemembers
and veterans with disabilities seeking to access important
benefits: Servicemembers report poor servicing practices that
make it harder for them to access the benefits they've earned
through military service, such as difficulties obtaining
interest rate reductions and problems enrolling in a beneficial
repayment program. The Bureau has also heard from
service-disabled veterans who ended up with damaged credit after
their loan discharge was incorrectly reported to the credit
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reporting agencies.
5)Servicing problems may put older consumers' retirement at risk:
Poor servicing practices may negatively affect many older
consumers, especially those who, as co-signers on private
student loans, become responsible for their children's or
grandchildren's defaulted loans.
6)Borrowers with disabilities may not be accessing benefits for
canceling or discharging student debt: Some borrowers with
disabilities report providing information about their financial
circumstances to servicing personnel, but never being told about
options to discharge student debt due to their "Total and
Permanent Disability," which entitles them to certain loan
forgiveness benefits. In cases like these, borrowers with
disabilities who have limited financial resources may make
unnecessary extra payments toward their loans.
U.S. DOE, CFPB and U.S. Department of the Treasury (DOT) released
a Joint Statement of Principles on Student Loan Servicing
subsequent to the release of the CFPB report. The joint statement
was developed as a framework to improve student loan servicing
through focus on the following issues:
1)Consistent. Student loan borrowers and servicers alike would
benefit from a clear set of expectations for what constitutes
minimum requirements for servicers provided by student loan
servicers and servicer communications with borrowers, including
adequate and timely customer service. Student loan borrowers
should expect effective student loan servicing, including, but
not limited to, conduct related to payment processing, servicing
transfers, customer requests for information, error resolution,
and disclosure of borrower repayment options and benefits. Such
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conduct should account for and recognize variations in loan
features, terms, and borrower protections.
2)Accurate and Actionable. Student loan borrowers often depend on
servicers to provide basic information about account features,
borrower protections, and loan terms. It is critical that
information provided to borrowers by student loan servicers be
accurate and actionable. Information, including explanation and
instructions regarding borrowers' loans and repayment options,
should be presented in a manner that best informs borrowers,
helps them achieve positive outcomes, and mitigates the risk and
costs of default.
3)Accountable. Student loan servicers, whether for-profit,
not-for-profit or government agencies, should be accountable for
serving borrowers fairly, efficiently and effectively. If
servicers fall short and violate federal or state consumer
financial laws, the DOE, contractual requirements, or federal
regulations, borrowers, federal and state agencies and
regulators, and law enforcement officials should have access to
appropriate channels for recourse, as authorized under law.
4)Transparent. The public, including student loan borrowers, may
benefit from information about the performance of private and
federal student loans and the practices of individual student
loan lenders and servicers, including information related to
loan origination, loan terms and conditions, borrower
characteristics, portfolio composition, delinquency and default,
payment plan enrollment, utilization of forbearance and
deferment, the administration of borrower benefits and
protections, and the handling of borrower complaints. The
federal government already makes much of this information
available for federal student loans, and private-sector lenders
and servicers should follow suit. Portfolio performance data,
including data at the individual servicer level, should be
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available for all types of student loans.
In an effort to improve loan repayment and loan servicing DOE
announced on April 5th, 2016 a plan to improve and streamline the
way in which federal student loan borrowers pay back their loans.
DOE has put out a request for creation of a web portal that would
be a single source for borrowers to pay back their loans
regardless of which loan servicer they have. Correspondence sent
to borrowers would come from DOE, not loan servicers and loan
transfers between servicers would decrease. This portal would
also take complaints from borrowers.
Discussion.
There are 10 DOE approved servicers for federal student loans.
These servicers are:
1)CornerStone
2)ESA/Edfinancial
3)FedLoan Servicing (PHEAA)
4)Granite State - GSMR
5)Great Lakes Educational Loan Services, Inc.
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6)MOHELA
7)Navient
8)Nelnet
9)OSLA Servicing
10)VSAC Federal Loans
The private student loan market is estimated to comprise roughly
7.6% of the $1.31 trillion student loan market, according to
MeasureOne. Commercial banks hold 40% of private student loans and
around 20% of federal student loans, according to the Federal
Reserve. Six companies - Citizens Bank, Discover, Navient, PNC
Bank, Sallie Mae and Wells Fargo - represent 66.7% of the private
student loan market, according to MeasureOne, a student loan data
research company. Banks and credit unions are exempt from
licensing under AB 2251 therefor companies such as Citizens Bank,
PNC Bank and Wells Fargo would not need to be licensed under this
bill. Even if they were included it may raise some potential
federal preemption issues as national banks cannot be regulated by
state regulators.
Concerns regarding servicing practices of student loans provided
the impetus for this bill. The CFPB report on servicing problems
makes a series of recommendations, yet this is a situation of an
unacknowledged dinner guest. CFPB and DOE have criticized
servicing practices yet it is DOE that approves servicers for
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federal student loans and therefore could have direct impact on
the actions of servicer
The federal response thus far has been to highlight the problems
in the marketplace and do little to resolve the issue over which
they have direct control.
AB 2251 is well intentioned legislation designed to bring fairness
to student loan borrowers. However, it contains numerous and
elaborate licensing requirements for potential licensees as
opposed to robust standards for providing appropriate standards of
service to student loan borrowers. It is not that the standards
don't exist in the bill, rather the duties owed to borrowers are
vague and unclear and are not as robust as the licensing
requirements for servicers. Licensing is a potential a tool to
compel certain types of positive market behaviors but it is no
guarantee. The following are some issues that the author may want
to consider going forward. Staff has recommended amendments to
deal with some of these issues, but more work should be done to
ensure that this bill can bring value and change to the student
loan servicing marketplace.
1)This bill amends the CFFL and changes its title to the CFFL and
"The California Student Loan Borrowers Bill of Rights." The
CFFL allows consumer loans of varying amounts including auto
purchase finance lending, commercial and residential mortgage
lending, loan brokering and even small dollar unsecured and
secured loans. Adding in provisions concerning student loan
servicing is adding another layer of complication to a law that
is already in vital need of reform. Therefor staff recommends
taking The California Student Loan Borrowers Bill of Rights out
of the CFFL and into its own standalone section within the
financial code.
2)Broad definition of "servicing" which includes "performing other
administrative services." More detail is needed on what types
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of "administrative services" would be covered and trigger a
licensing requirement.
3)A licensee is required to provide a borrower with certain
information but it does not specify how the information must be
provided or if any timelines are associated with the
information. For example, a servicer must provide "accurate
information about?repayment options?" but not within a specified
time or in a specified manner..
4)Uses undefined terms potentially open to broad interpretation
such as "quality customer service and fair treatment." This
vagueness could cause potential long and drawn out disagreements
between a licensee and DBO concerning licensing requirements.
5)The licensing fee is undetermined. What is the appropriate fee?
Licensing fees are often based on the total size of the
licensed population. It is unclear how many entities would need
to be licensed or even where they are located.
6)The licensing portion is far larger than the actual consumer
protection pieces of the bill. The requirements to get and
maintain a license are more numerous and prescriptive than the
duties owed to student loan borrowers. Additional provisions
should be added that will ensure quality servicing to borrowers.
7)Proposed section 22660.5 requires a licensee to provide a
student loan borrower with specified items though those items
are somewhat unclear (see note #4). Section 22660.25 states a
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licensee "shall do all of the following:" Staff suggests merging
these sections together, as well as, add further clarity to the
duties owed to a borrower. These proposed amendments are in #2
below and should not be considered a definitive list of items
but rather a starting point.
8)Page 11, lines 16-19 allows the Commissioner of DBO to require
"an applicant to submit a statement signed under penalty of
perjury agreeing to comply with the requirements of this
section." No other provision in the Financial Code affords the
Commissioner of DBO this authority to determine whether a
licensee should sign a statement under penalty of perjury that
they will comply with a specific section of code. Staff
recommends deleting this provision.
9)AB 2251 contains many technical and drafting issues that will
need to be addressed as the bill moves forward. It defines
"servicing" among other things, as "performing other
administrative services" with respect to a student loan. This
is vague and unclear as to what level of administrative services
would elevate to the level of "servicing" and creates a
potential issue where a broad interpretation could include
almost any activity, including loan origination.
10)A licensee may only engage in servicing in one location per
language on page 8, lines 34-39. It is unclear what this
restriction is attempting to accomplish. Additionally, this ties
into the definition of servicing mentioned in #9. Based on the
location restriction the licensee would not be allowed to have
any administrative services located at another location.
Licensing laws in the Financial Code vary in how they authorize
branch office activity. Staff recommends that that author
further refine this provision.
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11)This bill may also apply to collages and universities that do
their own servicing of loans. Is it the intent of the bill to
cover those circumstances? The bill should be clarified to
address its intended and practical application.
Proposed Amendments.
1) Remove provisions of bill from CFLL and place in
standalone section within Financial Code.
2) Delete section 22660.5 and instead add changes to section
22660.25 that require student loan servicers to do the
following:
a. Inform borrowers of repayment or loan
forgiveness options.
b. In the case of a borrower seeking to resolve an
issue or enter a repayment plan, appoint a single point
of contact for that borrower.
c. Respond to written request from a borrower for
specified information within 30 business days.
d. Appropriatly apply amounts in excess of the
minimum payment to the interest and fees owed on the
payment due day and then to the principal balance of the
loan.
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3) Inform the borrower if the servicing of their loan
transfers to another entity, as well as the contact
information for the new servicer.
4) Eliminate the ability of the Commissioner to require an
application to submit a signed statement under penalty of
perjury agreeing to comply with the act.
5) Add clear enforcement provisions consistent with
enforcement authorities the Commissioner has under other
licensing laws.
REGISTERED SUPPORT / OPPOSITION:
Support
Attorney General Kamal Harris (Sponsor)
National Association of Social Workers (NASW)
Opposition
None on file.
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Analysis Prepared by:Mark Farouk / B. & F. / (916) 319-3081