BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 2251 (Mark Stone) - Student loan servicers: licensing and
regulation: Student Loan Borrower's Bill of Rights
-----------------------------------------------------------------
| |
| |
| |
-----------------------------------------------------------------
|--------------------------------+--------------------------------|
| | |
|Version: June 13, 2016 |Policy Vote: B. & F.I. 5 - 2 |
| | |
|--------------------------------+--------------------------------|
| | |
|Urgency: No |Mandate: Yes |
| | |
|--------------------------------+--------------------------------|
| | |
|Hearing Date: August 8, 2016 |Consultant: Debra Cooper |
| | |
-----------------------------------------------------------------
This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 2251 would create the "Student Loan Servicing Act"
which would establish a new licensing law applicable to student
loan servicers, administered by the Department of Business
Oversight (DBO).
Fiscal
Impact:
Estimated costs to DBO of $900,000 in fiscal year 2016-17 and
$900,000 in fiscal year 2017-18 for 11 PY of staff to develop
regulations and create the infrastructure to implement the
Student Loan Servicing Act on July 1, 2018.
Estimated costs to DBO of $1.8 million per year from the last
six months of fiscal year 2017-18 through the last six months
of fiscal year 2018-19 and ongoing costs of $1.7 million per
year thereafter for administering the program.
AB 2251 (Mark Stone) Page 1 of
?
Starting fiscal year 2018-19, ongoing costs to DBO may be
offset by application fees and application investigation fees
imposed on applicants.
Background: According to the Consumer Financial Protection Bureau, as of
September 2015, more than 41 million Americans, collectively,
owed more than $1.2 trillion in outstanding federal student loan
debt. In the third quarter of 2015, the average student loan
debt burden of an individual borrower was nearly $30,000.
According to Measure One, there was an estimated $102 billion in
private student loan debt in the first quarter of 2016, which
accounted for about 7.5% of total outstanding student loan
(92.5% of outstanding student debt is federal).
Currently, ten entities are authorized to service federal
student loans, and a variety of institutions service private
student loans. Additionally, there are entities that offer
student loan borrowers the opportunity to refinance their
outstanding student loans.
The Federal Direct Loans, Family Education Loan, and Perkins
Loans Programs are all governed by Title IV of the Higher
Education Act of 1965. Student loan servicers are also required
to comply with the federal Fair Debt Collection Practices Act
and the Rosenthal Fair Debt Collection Practices Act. However,
there are no state rules in California that specifically govern
student loan servicers. Existing law authorizes DBO to
administer the California Financial Lenders Law (CFLL) and the
California Residential Mortgage Lending Act (CRMLA). Both the
CFLL and CRMLA authorize the servicing of loans taken out for
personal, family, or household purposes, but neither are
specific to loans taken out to finance postsecondary educational
purposes.
The sponsor of the bill, Attorney General Kamala Harris, states
that this bill will "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 (Mark Stone) Page 2 of
?
Proposed Law:
This bill would create the Student Loan Servicing Act,
operative July 1 2018, which establishes a new licensing law
applicable to student loan servicers. Specifically, this bill
would:
Define various terms including "servicing," "student loan,"
and "student loan servicer."
Require any person who services student loans in California to
be licensed according to the Student Loan Servicing Act.
Licensing exceptions would be made for:
- A bank, trust company, or industrial loan company,
as specified;
- A federally chartered savings and loan association,
federal savings bank, or federal credit union, as
specified;
- A savings and loan association, savings bank, or
credit union, as specified;
- A non-profit postsecondary educational institution
servicing a student loan it extended to the borrower;
- A person who is licensed in good standing with the
California Finance Lenders law and services student
loans.
Require the Commissioner of Business Oversight to administer
the Student Loan Servicing Act and authorize the commissioner
to promulgate regulations and issue orders consistent with
that authority. Functions, powers, and duties of the
commissioner would include:
- Issuing or refusing to issue a license;
- Revoking or suspending a license;
- Keeping records of licenses;
- Receiving, considering, investigating, and acting
upon complaints associated with a licensee;
- Prescribing the forms, and receiving applications,
reports, books, and records from licensees;
- To subpoena documents and witnesses, as specified;
- Requiring information about an applicant regarding
experience, background, honesty, truthfulness, integrity,
and competency;
- Enforcement of the provisions of the Act;
- Levying fees, fines, and charges to cover the cost
of the services for administering the Act;
AB 2251 (Mark Stone) Page 3 of
?
- Appointing examiners, supervisors, experts, and
special assistants to administer the Act.
Authorize the commissioner to conduct investigations and
examinations of an applicant or licensee, as specified.
Require a licensee to submit application and application
investigation fees, submit to a background check, maintain a
minimum net worth of $250,000 at all times, maintain a minimum
$25,000 surety bond on file with the commissioner, submit an
annual financial audit, obtain approval from the commissioner
before opening a new branch office, file with the commissioner
any report required by regulation or order of the
commissioner, submit to periodic examination by the
commissioner, develop policies and procedures to comply with
the Student Loan Servicing Act, and comply with the Act.
Prohibit a licensee from;
- Directly or indirectly employing any scheme, device,
or artifice to defraud or mislead a borrower;
- 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;
- Misapplying payments made by a borrower to the
outstanding balance of a student loan;
- Failing to accurately report each borrower's payment
performance to at least one consumer reporting agency
that compiles and maintains files on consumers, as
specified;
- Refusing to communicate with an authorized
representative of the borrower, as specified;
- Negligently or intentionally making any false
statement or knowingly and willfully omitting any
material fact in connection with any information or
reports filed with the commissioner, the department, or
another governmental agency.
Require the commissioner to examine the affairs of each
licensee for compliance at least once every three years.
Authorize the commissioner to apply several enforcement tools,
including desist and refrain orders, civil penalties of up to
$2,500 per violation, citation and fining up to $2,500 per
citation, administrative penalties of up to $100 per day for
failure to submit reports, license suspension and revocation,
and ability to petition a court for ancillary relief on behalf
of persons injured by the act or practices of a licensee.
Licensees are entitled to challenge enforcement actions
AB 2251 (Mark Stone) Page 4 of
?
brought by the commissioner.
Staff
Comments: The number of private student loan servicers that
would be required to be licensed under the purview of this bill
is unknown. According to Measure One, six companies (four of
which are banks and credit unions that would be exempted from
licensing under this bill) represent approximately 67% of the
private student loan market. The servicers that would be
required to be licensed under this bill range in size from small
servicers with fewer than 50 employees to larger servicers with
a few thousand employees. The smaller servicers state concerns
that their company would not be able to manage the financial
requirements of this bill.
Costs to DBO include staffing for preparing for implementation
of the Act, implementing the Act starting July 1, 2018, and
legal needs related to oversight and enforcement.
-- END --