BILL ANALYSIS Ó
AB 2251
Page 1
Date of Hearing: May 18, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2251 (Mark Stone) - As Amended May 10, 2016
-----------------------------------------------------------------
|Policy |Banking and Finance |Vote:|9 - 2 |
|Committee: | | | |
| | | | |
| | | | |
|-------------+-------------------------------+-----+-------------|
| | | | |
| | | | |
| | | | |
|-------------+-------------------------------+-----+-------------|
| | | | |
| | | | |
| | | | |
-----------------------------------------------------------------
Urgency: No State Mandated Local Program: YesReimbursable:
No
SUMMARY:
This bill creates the California Student Loan Borrower's Bill of
Rights and requires certain student loan servicers to obtain a
license from the Department of Business Oversight (DBO).
AB 2251
Page 2
Specifically, this bill:
1)Requires all student loan servicers operating in California to
obtain a license from DBO, except a person authorized to
service student loans to borrowers pursuant to federal law, a
bank, trust company, insurance company, or industrial loan
company with a federal or state charter, savings and loan
association, savings bank, or credit union with a federal or
state charter, or a wholly owned service corporation.
2)Prohibits licensees from doing the following:
a) Engaging in any unfair or deceptive practice toward any
borrower, misrepresenting any information in connection
with student loan servicing, or making any false statement
with any reports or information field with DBO or other
governmental agencies.
b) Obtaining borrower's property by fraud or
misrepresentation;
c) Knowingly misapplying borrower payments to the
outstanding balance of a student loan or providing
inaccurate information to a credit bureau;
d) Failing to report both a favorable and unfavorable
payment history of the borrower to a consumer credit bureau
at least annually if the licensee regularly reports
information to a credit bureau; and,
e) Refusing to communicate with an authorized
representative of the borrower.
AB 2251
Page 3
3)Provides that DBO can conduct investigations and examinations
of an applicant or licensee and may access applicable records
or evidence, including criminal, civil, and administrative
history, personal history and experience information, and that
DBO can charge an applicant or licensee the actual costs of
conducting this inspection or examination.
4)Requires DBO to submit to the Department of Justice (DOJ)
fingerprint images and other related information to obtain
criminal history, and allows DOJ to charge DOB a fee
sufficient to cover the costs of processing these requests.
5)Allows DBO to suspend or revoke a license of the licensee and
requires a licensee that ceases to service student loans to
inform DBO in writing and surrender their license.
6)Allows DBO to assess a civil penalty up to $1,000 for each
violation or $1,000 for each day during which the violation
continues, plus DBO's actual costs for the investigation and
prosecution, including attorney's fees.
FISCAL EFFECT:
1)DBO will incur significant special fund costs of $1.8 million
in the first year and $1.7 million each year thereafter. Cost
drivers include enforcement staff, overhead, and the
reimbursement of DOJ for the cost of criminal history
inspections.
2)Ongoing costs will be offset by regulatory fees as DBO is
authorized to charge an applicant or licensee the actual costs
AB 2251
Page 4
of conducting inspections or examinations.
COMMENTS:
1)Purpose. According to AB 2251's sponsor, Attorney General
Kamala Harris, this bill will protect students and help ensure
that bad actors who profit through harmful or deceptive
business practices are held accountable. Supporters contend
that this bill will provide guidance to borrowers.
2)Student loans servicing. There are 10 DOE approved servicers
for federal student loans. These servicers are: CornerStone,
ESA/Edfinancial, FedLoan Servicing (PHEAA), Granite State -
GSMR, Great Lakes Educational Loan Services, Inc., MOHELA,
Navient, Nelnet, OSLA Servicing, and VSAC Federal Loans.
The precise number of private student loan servicers that
would be under the purview of AB 2251 is unknown. Six
companies - Citizens Bank, Discover, Navient, PNC Bank, Sallie
Mae and Wells Fargo - represent an estimated 67% of the
private student loan market. Banks and credit unions are
exempt from licensing under AB 2251, therefore companies such
as Citizens Bank, PNC Bank and Wells Fargo would not need to
be licensed.
3)Problems with student loan servicing industry. A 2015 report
from the Consumer Financial Protection Bureau (CFPB)
highlighted a number of problems and concerns about federal
and private student loan servicers, including poor customer
service, surprise fees and lost benefits, roadblocks to
refinancing, and co-signer policies that cause defaults or
borrower distress.
AB 2251
Page 5
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081