BILL ANALYSIS Ó SENATE COMMITTEE ON BANKING AND FINANCIAL INSTITUTIONS Senator Steven Glazer, Chair 2015 - 2016 Regular Bill No: AB 2251 Hearing Date: June 29, 2016 ----------------------------------------------------------------- |Author: |Mark Stone | |-----------+-----------------------------------------------------| |Version: |June 13, 2016 Amended | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Eileen Newhall | | | | ----------------------------------------------------------------- Subject: Student loan servicers: licensing and regulation: Student Loan Borrower's Bill of Rights SUMMARY Enacts the Student Loan Borrower's Bill of Rights, which establishes a new licensing law applicable to student loan servicers, administered by the Department of Business Oversight (DBO), as specified. DESCRIPTION 1. Contains findings and declarations regarding the magnitude of outstanding student loan debt in the United States, the challenges that this debt places on the state's economy, the lack of consistent federal standards for student loan servicing, and the results of a September 2015 report issued by the Consumer Financial Protection Bureau (CFPB), which documented several challenges faced by student loan borrowers when attempting to gain answers to questions from their servicers and gain assistance from their servicers in correcting payment processing errors. States the intent of the Legislature to promote meaningful access to federal affordable repayment and loan forgiveness benefits, reliable information about student educational loans and loan repayment options, and quality customer service and fair treatment. 2. Establishes a new division within the Financial Code, named the California Student Loan Borrower's Bill of Rights, AB 2251 (Mark Stone) Page 2 of ? administered by DBO, which requires persons engaged in the business of servicing student loans within this state, as defined, to obtain licenses, as specified. Significant provisions of this new licensing law are as follows: a. "Servicing" means any of the following: (1) receiving any scheduled periodic payments from a borrower or any notification that a borrower made a scheduled periodic payment and 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, maintaining account records for the student loan and communicating with the borrower regarding the student loan on behalf of the student loan's holder; or (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 (1) or (2). b. "Student loan" means any loan primarily to finance a postsecondary education 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. c. "Engage in the business" means servicing student loans or disseminating information to the public relating to the servicing of student loans. d. The following entities are exempted from the requirement to be licensed as student loan servicers: state- or federally-chartered depository institutions, insurance companies, nonprofit postsecondary educational institutions servicing student loans they extend to borrowers, and persons who are licensed in good standing pursuant to the California Finance Lenders Law (CFLL). e. The Commissioner of Business Oversight (commissioner) is given authority to promulgate regulations and issue orders to further the purposes of the division; conduct investigations and examinations of applicants and licensees, as specified; grant or deny licenses based on specified criteria; impose and collect AB 2251 (Mark Stone) Page 3 of ? license fees and fees related to regulatory examinations, as specified; and pursue enforcement actions against licensees and unlicensed persons who are acting in a manner that requires licensure, as specified. f. Licensees are required to submit to background information checks as a condition of licensure; maintain a minimum $25,000 surety bond on file with the commissioner; maintain a minimum net worth of $250,000 at all times; obtain approval from the commissioner prior to opening any new branch office; file any report required by regulation or order of the commissioner, including an annual report; submit to periodic examination by the commissioner; and do all of the following: i. Maintain staff adequate to meet the requirements of the division and every regulation and order of the commissioner. ii. Advise the commissioner of filing a petition for bankruptcy within five days of the filing. iii. Comply with all applicable state and federal laws and tax return filing requirements. iv. 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, written correspondence or an email describing those options, as applicable. v. Appoint a single point of contact for a borrower. vi. Respond to a qualified written request, as defined, by acknowledging receipt of the request within five business days, and within 30 business 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 account is correct. AB 2251 (Mark Stone) Page 4 of ? vii. Refrain from submitting adverse information regarding any payment that is the subject of a qualified written request to any consumer reporting agency during the 60 business-day period starting on the date the servicer receives a qualified written request related to a dispute on a borrower's payments. viii. Inquire of a borrower how to apply an overpayment by that borrower on his or her student loan, as specified. ix. Notify the commissioner before selling, assigning, or transferring the servicing of a student loan that 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. x. 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, notify that borrower in writing at least 15 days before he or she is required to send a payment to the new servicer. This notification is required to contain specified information identifying and providing contact information for the new servicer, and specifying the date on which the new servicer will begin accepting payments. The servicer is also required to transfer all information regarding a borrower, a borrower's account, and a borrower's student loan to the new licensee within 45 calendar days of a sale, assignment, or transfer. xi. 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. g. Licensees are prohibited from doing any of the following: AB 2251 (Mark Stone) Page 5 of ? i. Directly or indirectly employing any scheme, device, or artifice to defraud or mislead a borrower. ii. Engaging in any unfair or deceptive practice toward any borrower or misrepresenting or omitting 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. iii. Obtaining property of a borrower by fraud or misrepresentation. iv. Misapplying payments made by a borrower to the outstanding balance of a student loan. v. Providing inaccurate information to a credit bureau regarding a borrower. vi. Failing to report both the favorable and unfavorable payment history of a borrower to a nationally recognized consumer credit bureau at least annually, if the licensee regularly reports information to a credit bureau. vii. Refusing to communicate with an authorized representative of the borrower who provides a written authorization signed by the borrower, as specified. viii. Negligently or intentionally making any false statement or knowingly and willfully making any omission of a material fact in connection with any information or reports filed with the commissioner, DBO, or another governmental agency. h. The commissioner is granted several enforcement tools, including desist and refrain orders; civil penalties of up to $2,500 per violation; administrative penalties of up to $100 per day for failure to submit AB 2251 (Mark Stone) Page 6 of ? reports; license suspension and revocation; and the ability to petition a court for ancillary relief on behalf of persons injured by the act or practice of a licensee. Licensees are entitled to challenge enforcement actions brought by the commissioner pursuant to procedures specified in the Administrative Procedures Act (Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code). EXISTING LAW grants DBO the authority to administer the CFLL (Financial Code Section 22000 et seq.) and the California Residential Mortgage Lending Act (CRMLA; Financial Code Section 50000 et seq.), both of which authorize the servicing of loans taken out for personal, family, or household purposes, but neither of which is specific to loans taken out to finance postsecondary educational expenses. COMMENTS 1. Purpose: This bill is sponsored by Attorney General Kamala Harris to provide increased accountability among student loan servicers and to improve the quality of communications between student loan borrowers and their student loan servicers. According to this bill's author, the licensure program proposed in this bill will be able to protect consumers from errors by student loan servicers and allow servicers to document their adherence to California's rules. 2. Background: Student loan debt is second in size only to mortgage debt, among all types of debt held by U.S. consumers. According to CFPB, more than 41 million Americans collectively owed more than $1.2 trillion in outstanding federal student loan debt as of September, 2015. In less than a decade, the volume of outstanding federal student loan debt has more than doubled, rising from $516 billion in 2007 to over $1.2 trillion in the third quarter of 2015. During the same time period, the average student loan debt burden of individual borrowers grew by nearly 60%, rising from about $18,000 in 2007 to nearly $30,000 in the third quarter of 2015. Measure One, a consortium of the nation's six largest private student loan lenders, estimated that total outstanding private student loan debt totaled approximately $100 billion AB 2251 (Mark Stone) Page 7 of ? in the third quarter of 2015 (http://www.measureone.com/reports). Approximately 92% of outstanding student loan debt is federal, while 8% is private. 3. Types of federal student loans : According to the U.S. Department of Education (USDOE), there are four main types of postsecondary education loans under which borrowers have outstanding balances. Direct Loans are federal loans made directly to borrowers by USDOE 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. New FFELP loan originations ended in 2010, pursuant to the SAFRA Act, but a significant number of FFELP loans remain outstanding. Federal Perkins Loans, which are co-funded by institutions of higher education and the federal government, are originated and administered by participating educational institutions. Private student loans are made by depository and non-depository financial institutions, states, institutions of higher education, and other entities. 4. Who services student loans? Ten entities are currently authorized to service federal student loans, including CornerStone, FedLoan Servicing (PHEAA), Granite State-GSMR, Great Lakes Educational Loan Services, Inc., HESC/Edfinancial, MOHELA, Navient, Nelnet, OSLA Servicing, and VSAC Federal Loans ( https://studentaid.ed.gov/sa/repay-loans/understand/servicer s ). A variety of institutions service private student loans, including Citizens Bank, Discover, Navient, PNC Bank, SallieMae, Wells Fargo Bank, AES, ACS, Aspire, Nelnet, and several private educational institutions, among others. A different group of companies, including SoFi, Earnest, CommonBond, CollegeAve, LendKey, U-Fi, and others offer student loan borrowers the opportunity to refinance their outstanding student loans, which can involve additional servicers beyond those listed above. As amended on June 13th, this bill applies its provisions to entities which service federal or private student loans, or both. Although exemptions from the bill are provided for depository institutions, insurance companies, nonprofit private postsecondary educational institutions, and entities AB 2251 (Mark Stone) Page 8 of ? already licensed in good standing under the CFLL, the majority of the entities listed immediately above will be subject to this bill's provisions. 5. What Rules Currently Apply to Student Loan Servicers? Direct Loans, Perkins Loans, and FFELP loans are governed by Title IV of the Higher Education Act of 1965. Federal regulations applicable to the William D. Ford Federal Direct Loan Program are found in 34 CFR Part 685; those applicable to FFELP loans are found in 34 CFR Part 682; and those applicable to Perkins Loans are found in 34 CFR Part 674. Student loan servicers are also required to comply with the federal Fair Debt Collection Practices Act (15 USC Section 1692 et seq.) and the Rosenthal Fair Debt Collection Practices Act (Civil Code Section 1788 et seq.). This bill applies a layer of state rules on top of existing federal student loan servicing regulations and state and federal debt collection practices laws, and establishes a regulatory framework under which a California regulator (DBO) can sanction student loan servicers who fail to comply with the new rules this bill establishes. 6. Concerns about student loan servicing: In October, 2014, the CFPB's Student Loan Ombudsman issued a report analyzing over 5,300 private student loan complaints received during the 2013-14 federal fiscal year. On the basis of those complaints, the CFPB concluded that many consumers would repay their private student loans, if they could qualify for a repayment plan that reflected their current financial circumstances. Instead, many borrowers reported being driven to default by their lenders, because no viable repayment options were available to them. Among the complaints received by CFPB about private student loans: 1) Information about the availability of and eligibility for loan modifications is not readily available; borrowers also reported receiving conflicting or inaccurate information from different customer service representatives at the same lender or servicer. 2) Unlike federal student loan borrowers, who are entitled, by law, to a range of affordable loan modification options, including income-based repayment plans, extended loan terms, and plans that start with a small payment and increase over time, private student AB 2251 (Mark Stone) Page 9 of ? loan borrowers are not entitled to any relief. Instead, consumers complained that their private student loan lenders and servicers tell them that they are not eligible for any affordable repayment plans that would allow them to avoid default. 3) Although some private student lenders offer temporary forbearance in lieu of affordable repayment plans, borrowers report that even these temporary forbearance options carry burdensome enrollment fees and processing delays. In May, 2015, the CFPB joined with USDOE and the Department of the Treasury to launch a public inquiry into federal and private student loan servicing practices. That inquiry led to publication of a September, 2015 report by the CFPB titled, "Student Loan Servicing: Analysis of Public Input and Recommendations For Reform" ( http://files.consumerfinance.gov/f/201509_cfpb_student-loan- servicing-report.pdf ). Analyzing over 30,000 comments, including over 8,000 comments from individual borrowers with outstanding student loans, that report identified a myriad of frustrations and challenges faced by student loan borrowers. Concerns related to five specific areas, including borrower benefits and consumer protections, servicing transfers, customer service and error resolution, payment processing, and practices that affect specific borrower segments, such as military families and older borrowers. An incomplete list of the problems identified by the CFPB and described in that report: Borrowers may not be informed about the availability of certain alternative repayment plans or may be encouraged by servicing personnel to enroll in alternatives that may not be in their best interests. Federal student loan borrowers may not be informed about interest subsidies, loan forgiveness, or other benefits associated with income-driven repayment plans. Private student loan borrowers in financial distress may not be able to access accurate information about options to avoid default. Federal student loan borrowers may be enrolled in repayment plans that do not reflect their choices due to paperwork processing errors. Borrowers encounter delays and processing errors when attempting to certify their incomes while enrolling in income-driven repayment plans. Borrowers requesting forbearance may experience processing delays and AB 2251 (Mark Stone) Page 10 of ? receive unclear information about eligibility requirements. Servicers are slow to credit borrowers who have complied with repayment incentives. Borrowers with federal student loans may not be made aware of available options to cancel or discharge their student debt. Borrowers with private student loans may have no options available to discharge or cancel their debt. Borrowers seeking loan forgiveness under the federal Public Service Loan Forgiveness program can encounter service breakdowns that limit benefits and prolong repayment. Borrowers often do not receive notice that their loans are being transferred to new servicers. Variations in payment policies across servicers may adversely affect borrowers following servicing transfers, especially when new servicers elect not to continue certain payment arrangements agreed to by previous servicers and fail to notify borrowers of changes in repayment arrangements. Payments may be lost or may be processed but not posted to borrower's accounts following a servicing transfer, even when borrowers follow servicers' instructions. Borrowers pursuing benefits that require servicers to monitor payment histories report breakdowns when attempting to reconcile conflicting information following a transfer. Borrowers' access to payment histories and information about the ways in which payments have been allocated between interest and principal can be limited. Borrowers may not be able to access documentation about their loans, including their original loan contracts. Servicing personnel may provide borrowers with conflicting, inconsistent, or inaccurate information. Servicing personnel may decline to provide requested assistance or fail to deliver on assistance that has been offered. Borrowers may encounter barriers when trying to resolve account errors. Borrowers' payments may be posted late, resulting in additional accrued interest and late fees, and preventing borrowers from receiving credit for timely payments through incentive programs. Servicers may not process borrower payments in accordance with borrower instructions; furthermore, in some instances, borrower instructions may be honored, but only periodically and not consistently. Billing statements may not provide accurate or complete information regarding when payments are due, when late fees are assessed, when payments do and do not qualify for specific borrower benefits and protections, and regarding borrowers' repayment options. Servicers may not provide regular periodic billing statements or provide AB 2251 (Mark Stone) Page 11 of ? borrowers with billing statements too close to payment due dates. AB 2251 includes provisions intended to begin addressing the findings of CFPB's inquiries into student loan servicing practices. 7. Summary of Arguments in Support: Attorney General Kamala Harris believes that many of the issues addressed by the 2012 Homeowner Bill of Rights are similar to those that have surfaced in the student loan servicing industry. "AB 2251 will protect students and provide clarity in a confusing space. By passing this legislation now, California may successfully forestall a crisis like what homeowners experienced at the height of the country's mortgage fraud epidemic. This bill would ensure that bad actors who profit through harmful or deceptive business practices are held accountable, and that students can trust in the state's regulated responsibilities for servicers. AB 2251 will provide clear guidance to borrowers and empower students to pursue their educations with confidence." 8. Summary of Arguments in Opposition: The California Association of Private Postsecondary Schools (CAPS) is opposed to this bill unless it is amended. CAPS raises twelve concerns in its letter, several of which are addressed below in the Amendments section of this analysis (see amendments described in 9a, 9c, 9d, 9l, 9p, and 9t below). Additional amendments desired by CAPS, which have not yet been agreed to by the author, include the following: a. Page 4, line 24: Use of the words "directly or indirectly" is superfluous. Use of the word indirectly will only lead to confusion and is redundant given the language of line 23, which states that the bill applies to a person engaged in the business of servicing a student loan within this state. b. Page 5, line 13: An exemption is provided for nonprofit postsecondary educational institutions, but not for for-profit postsecondary educational institutions. For-profit postsecondary educational institutions also provide first party financing to their students and AB 2251 (Mark Stone) Page 12 of ? should also be exempted from the provisions of this bill. c. Page 7, line 24: The requirement to license entities that maintain records for students should be deleted. Read broadly under the definitions in the bill, any employee of a school who somehow touches a student loan file will have to be licensed, an outcome which will be economically infeasible and will result in many companies being unable to afford to service student loans in California. d. Page 11, line 28: The requirement that each license application be accompanied by financial statements prepared in accordance with generally accepted accounting principles (GAAP) and indicate a net worth of at least $250,000 should be deleted. Small and medium-sized companies often do not follow GAAP, nor are they required to do so. This bill's requirement that they do so places an extra financial burden on these companies. The $250,000 net worth requirement is also an unfair barrier to entry for small entities and an unreasonable demand on the industry. No new startup could enter the market given the high net worth requirement. e. Finally, many of the abuses this bill seeks to prevent are "already addressed in the federal fair Debt Collections Act and the California version of same. This bill needs to be placed side by side with these two statutes and one will see that there is great duplication and overreaching occurring under this bill. We strongly urge that this review take place to prevent chaos in the student loan industry." 9. Amendments: This bill is a work in progress. Although the author will be offering all of the amendments listed below, additional amendments will likely be necessary to address remaining outstanding issues (see Number 10 below). Furthermore, DBO, which has not yet taken an official position on the measure, is expected to recommend additional amendments, which may significantly alter the measure, once the Department is given authorization to provide formal input. Given the lack of a deadline forcing the Legislature to act on this issue this year, it may be prudent to hold AB 2251 (Mark Stone) Page 13 of ? this bill in Committee to allow its provisions to be more fully vetted and refined over the interim. However, if this Committee chooses to move the bill forward this year, it should expect to see several additional changes to the measure, before it is considered on the Senate Floor. a. Page 4, lines 9 and 10, strike "California Student Loan Borrower's Bill of Rights" and insert: Student Loan Servicing Act. Page 4, lines 16 and 17, strike ""California Student Loan Borrower's Bill of Rights"" and insert: Student Loan Servicing Act. b. Delay the operative date of this bill to July 1, 2017. c. Page 4, line 32, strike "insurance company," d. Page 6, line 8, strike "the dissemination to the" and strike lines 9 through 13. e. Page 6, strike lines 20 through 23 and insert: this state. f. Page 6, lines 30 and 31, strike references to "a joint venture," and "a joint stock company," g. Page 7, strike lines 3 through 11 and insert: Includes a statement of the reasons for the belief by the borrower, to the extent applicable, that the account is in error or that provides sufficient detail to the servicer regarding information sought by the borrower, such as a complete payment history for the loan or the borrower's account, a copy of the borrower's student loan promissory note, or the contact information for the creditor to whom the borrower's student loan is owed." h. Page 7, line 26, strike "student loan's holder" and insert: owner of the student loan promissory note i. Strike page 7, lines 27 through 30 and insert: Interacting with a borrower related to that borrower's student loan, with the goal of helping the borrower avoid AB 2251 (Mark Stone) Page 14 of ? default on his or her student loan or facilitating the activities described in paragraph (1) or (2). j. Page 7, line 34, strike "the" and insert: a aa. Page 8, line 10, after "division" insert a comma and the following: and may promulgate regulations and issue orders consistent with that authority. Page 8, strike lines 11 and 12. bb. Page 16, strike lines 5 and 6 and insert: Develop policies and procedures reasonably intended to promote compliance with this division. Page 16, strike lines 16 and 17. Page 16, strike lines 20 through 24 and insert the following: Provide, free of charge on its Internet Web site, information or links to information regarding repayment and loan forgiveness options that may be available to its borrowers, and provide this information to its borrowers, via written correspondence or email, at least once per calendar year. Page 16, strike lines 25 and 26. cc. Page 17, line 12, strike "(j)" and insert: (h) Page 17, line 15, after "and," insert: if applicable, Page 17, line 15, after "the" strike applicable dd. Page 18, between lines 10 and 11, insert the following: 28135. (a) A licensee shall not be required to comply with the requirements of subdivision (h) of Section 28134 if the licensee reasonably determines that any of the following apply: (1) A qualified written request is substantially the same as a qualified written request previously made by the borrower, for which the licensee has previously complied with its obligation to respond pursuant to AB 2251 (Mark Stone) Page 15 of ? subdivision (h) of Section 18134, unless the borrower provides new and material information to support the more recent qualified written request. New and material information means information that was not reviewed by the licensee in connection with a prior qualified written request submitted by the same borrower and that is reasonably likely to change the licensee's prior response related to that request. (2) A qualified written request is overbroad. A qualified written request is overbroad if the licensee cannot reasonably determine from the request the specific error that the borrower asserts has occurred on his or her account or the specific information the borrower is requesting related to his or her account. To the extent a licensee can reasonably identify a valid assertion of an error or valid request for information in a qualified written request that is otherwise overbroad, the licensee shall comply with the requirements of subdivision (h) of Section 28134 with respect to that valid asserted error or request for information. (3) A qualified written request is delivered to the licensee more than one year after the licensee sells, assigns, or transfers the servicing of the student loan that is the subject of the qualified written request to another servicer. (b) If, pursuant to subdivision (a) a licensee determines that it is not required to comply with the requirements of subdivision (h) of Section 28134, it shall notify the borrower of its determination, and the basis for its determination, in writing not later than five business days after making such determination. ee. Page 18, line 14, delete "to, then" Page 18, line 16, strike the first "a" and insert: the ff. Page 18, strike lines 36 through 39 and page 19, strike lines 1 and 2. gg. Page 19, strike line 14. hh. Page 19, strike lines 17 through 22 and insert: Fail to accurately report each borrower's payment performance to at least one consumer reporting agency AB 2251 (Mark Stone) Page 16 of ? that compiles and maintains files on consumers on a nationwide basis, upon acceptance as a data furnisher by that consumer reporting agency. For purposes of this section, a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis is one that meets the definition in Section 603(p) of the federal Fair Credit Reporting Act (15 USC Sec. 1681a(p)). ii. Page 19, line 33, after the period, insert: Notwithstanding subdivision (b) of Section 28136, Page 19, line 35, after "been" insert: sold, jj. Page 20, strike lines 22 through 40 and page 21, strike lines 1 through 27. aaa. Page 22, line 26, after "year," insert: including information regarding the number of loans that are sold, assigned, or transferred to another party. bbb. Page 22, between lines 36 and 37, insert: 28151. (a) At the end of the licensee's fiscal year, but in no case more than 12 months after the last audit conducted pursuant to this section, each licensee shall cause its books and accounts to be audited by an independent certified public accountant. The audit shall be sufficiently comprehensive in scope to permit the expression of an opinion on the financial statements prepared in accordance with generally accepted accounting principles and shall be performed in accordance with generally accepted auditing standards. The audit shall include a reconciliation of the licensee's trust accounts as of the audit date. (b) "Expression of an opinion" includes (1) an unqualified opinion, (2) a qualified opinion, (3) a disclaimer of opinion, or (4) an adverse opinion. If a financial statement, report, certificate, or opinion of the independent certified public accountant is in any way qualified, the commissioner may require the licensee to take any action that the commissioner deems appropriate to address the qualification. The commissioner may reject any financial statement, report, certificate, or opinion by notifying the licensee or other person AB 2251 (Mark Stone) Page 17 of ? required to make the filing of the rejection and the reason therefor. Within 30 days after the receipt of the notice, the licensee or other person shall correct the deficiencies. Failure to correct the deficiencies is a violation of this division. The commissioner shall retain a copy of all financial statements, reports, certificates, or opinions so rejected. (c) If a qualified or adverse opinion is expressed or if an opinion is disclaimed, the reasons therefor shall be fully explained. (d) The audit report shall be filed with the commissioner within 105 days of the end of the licensee's fiscal year. The report filed with the commissioner shall be certified by the certified public accountant conducting the audit. The commissioner may promulgate rules regarding late audit reports. (e) If a licensee required to make an audit fails to cause an audit to be made, the commissioner may cause the audit to be made by an independent certified public accountant at the licensee's expense. The commissioner shall select the independent certified public accountant by advertising for bids or by other fair and impartial means that the commissioner establishes by rule. The commissioner may summarily revoke the license of a licensee who fails to file a certified financial statement prepared by an independent certified public accountant as required by this division or at the request of the commissioner. ccc. Page 23, strike lines 12 through 38. On page 24, between lines 13 and 14, insert: (b) Unless otherwise exempt pursuant to Section 28106, 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 benefitting, affecting, or arising from the activities regulated by this division. (c) 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 AB 2251 (Mark Stone) Page 18 of ? 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. (d) 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. Page 24, strike lines 18 through 20 and insert: (f) 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. ddd. Page 28, between lines 30 and 31, insert: 28171. (a) If, upon inspection, examination, or investigation, the commissioner has cause to believe that a licensee or a person is violating or has violated any provision of this division or any rule or order thereunder, the commissioner or his or her designee may issue a citation to that licensee or person in writing, describing with particularity the basis of the citation. Each citation may contain an order to correct the violation or violations identified and provide a reasonable time period or periods by which the violation or violations must be corrected. In addition, each citation may assess an administrative fine not to exceed two thousand five hundred dollars ($2,500) that shall be deposited in the State Corporations Fund. In assessing a fine, the commissioner shall give due consideration to the appropriateness of the amount of the fine with respect to factors including the gravity of the violation, the good faith of the person or licensees AB 2251 (Mark Stone) Page 19 of ? cited, and the history of previous violations. A citation issued and a fine assessed pursuant to this section, while constituting punishment for a violation of law, shall be in lieu of other administrative discipline by the commissioner for the offense or offenses cited, and the citation and fine payment thereof by a licensee shall not be reported as disciplinary action taken by the commissioner. (b) Notwithstanding subdivision (a), nothing in this section shall prevent the commissioner from issuing an order to desist and refrain from engaging in a specific business or activity or activities, or an order to suspend all business operations to a person or licensee who is engaged in or who has engaged in continued or repeated violations of this division. In any of these circumstances, the sanctions authorized under this section shall be separate from, and in addition to, all other administrative, civil, or criminal remedies. (c) If, within 30 days from the receipt of the citation, the person cited fails to notify the department that the person intends to request a hearing pursuant to Section 28176, the citation shall be deemed final. (d) After the exhaustion of the review procedures provided for in this section, the commissioner may apply to the appropriate superior court for a judgment in the amount of the administrative fine and an order compelling the cited person to comply with the order of the commissioner. The application, which shall include a certified copy of the final order of the commissioner, shall constitute a sufficient showing to warrant the issuance of the judgment and order. 10. Remaining Outstanding Issues: a. Once amended as described in Number 9 above, this bill will impose several costly requirements on licensees, including a $250,000 net worth requirement, $25,000 surety bond requirement, and a requirement to submit audited financial statements prepared by an independent certified public accountant in accordance with GAAP to the commissioner on an annual basis. These requirements may be appropriate for large servicers, but will likely create a significant barrier to licensure for small servicers and may impose a significant financial AB 2251 (Mark Stone) Page 20 of ? burden on certain medium-sized servicers. Several small and medium-sized student loan servicers that are required to obtain licenses pursuant to the provisions of this bill may be unable to afford to do so. Other small and medium-sized student loan servicers may obtain licenses, but be forced out of business by the financial pressures imposed by ongoing licensure requirements. It is unclear what will happen to the students whose loans are serviced by those entities. It is also unclear whether this bill will result in a reduction of student loan financing among students who rely on entities that will no longer be able to do business in California if this bill is enacted. This Committee may wish to ask this bill's author to commit to working with student loan servicers to devise an appropriate series of tiers, which reflect small, medium, and large servicers, and to more carefully tailor the financial requirements of this bill to address the financial capacities of servicers within each of the tiers. b. Several of this bill's requirements appear to overlap with federal student loan servicing requirements and with the requirements of the federal Fair Debt Collection Practices Act (15 USC Section 1692 et seq.) and the Rosenthal Fair Debt Collection Practices Act (Civil Code Section 1788 et seq.). Because of the extensive nature of the most recent set of amendments to this bill and the limited time available in which to compare and contrast this bill with federal student loan servicing requirements and state and federal debt collection laws, the precise extent and nature of this overlap is not yet known. This Committee may wish to ask this bill's author to commit to more fully exploring the extent and nature of this overlap, and to modifying and/or eliminating provisions of this bill that are duplicative, conflicting, or less protective of consumers than federal servicing requirements and state and federal debt collection practices laws, before bringing this bill to a vote on the Senate Floor. AB 2251 (Mark Stone) Page 21 of ? LIST OF REGISTERED SUPPORT/OPPOSITION Support Attorney General Kamala Harris (sponsor) National Association of Social Workers, California Chapter Opposition California Association of Private Postsecondary Schools -- END --