OLR Bill Analysis
AN ACT CONCERNING A STUDENT LOAN BILL OF RIGHTS.
This bill requires the Banking Commissioner to create a new position in the Banking Department, a student loan borrower ombudsman, to provide timely assistance to “student loan borrowers” (borrowers). It establishes the ombudsman's duties and requires him or her, in consultation with the commissioner, to implement and maintain a prescribed student loan borrower education course.
The bill also requires the commissioner to allocate $500,000 from certain licensing fees to fund the implementation of the new position and the education course (see COMMENT).
It establishes licensure requirements and standards of conduct for student loan servicers and specifies the scope of services subject to licensure.
The bill provides the commissioner with authority to conduct investigations and examinations and take enforcement action against violators. He must also report annually, starting by January 1, 2016, to the Banking and Higher Education Committees on, among other things, the overall effectiveness of the ombudsman position.
EFFECTIVE DATE: July 1, 2016, except the sections on the implementation of the ombudsman position and the definitions are effective October 1, 2015.
§ 2 ─ DEFINITIONS
Under the bill, a "student loan borrower" is (1) any Connecticut resident who has received or agreed to pay a student education loan; or (2) anyone who shares repayment responsibility with such resident.
The bill defines "student education loan" as any loan used mainly for financing education or other school-related expenses.
Under the bill, "student loan servicer" means any person, regardless of location, who is responsible for servicing any student education loan to any student loan borrower.
With regard to a student education loan, "servicing" means:
1. receiving scheduled periodic payments from a student loan borrower according to the terms of a student education loan,
2. applying the payments according to the loan terms, and
3. performing other administrative services.
§ 1 ─ STUDENT LOAN OMBUDSMAN POSITION
Under the bill, the ombudsman, in consultation with the commissioner, must:
1. receive and review complaints from borrowers;
2. attempt to resolve such complaints, including doing so in collaboration with institutions of higher education, student loan servicers, and any other participants in student loan lending, including the University of Connecticut, the Board of Regents for Higher Education, the Office of Higher Education, or the Connecticut Higher Education Supplemental Loan Authority;
3. compile and analyze complaints data;
4. help borrowers understand their rights and responsibilities under the terms of student education loans;
5. provide information to the public, agencies, legislators, and others about borrowers' problems and concerns, and make recommendations for resolving those problems and concerns;
6. analyze and monitor the development and implementation of federal, state, and local laws, regulations, and policies regarding borrowers and recommend necessary changes;
7. review the loan history for borrowers who give written consent;
8. disseminate information about his or her availability to those with servicing concerns, such as borrowers, potential borrowers, state higher education institutions, and student loan servers; and
9. take any other actions necessary to fulfill his or her duties.
(The ombudsman's duties that pertain to student loan servicers are effective October 1, 2015. However, the student loan servicers' licensure requirements do not become effective until July 1, 2016.)
Student Loan Borrower Education Course
The bill requires the ombudsman, in consultation with the commissioner, to establish and maintain a student loan borrower education course by October 1, 2016. The course must include educational presentations and materials about student education loans. It must cover key loan terms, documentation requirements, monthly payment obligations, income-based repayment options, loan forgiveness, and disclosure requirements.
Under the bill, the department must allocate a maximum of $500,000 of the annual licensing fees from financial institutions that are not banks or savings associations (i.e., nondepository financial institutions), to establish the ombudsman position and develop the education course (see COMMENT).
§§ 3-6 AND 9 ─ STUDENT LOAN SERVICER
§ 3 ─ Licensure
The bill generally requires any person acting as a student loan servicer, to obtain a license from the commissioner. (Under the bill, the licensing requirements are not effective until July 1, 2016.)
Exemptions. The bill exempts the following from the student loan servicer licensing requirements:
1. any bank, out-of-state bank, Connecticut credit union, federal credit union, or out-of-state credit union;
2. any wholly-owned subsidiary of any such bank or credit union; and
3. any operating subsidiary where each owner of such operating subsidiary is wholly-owned by the same bank or credit union.
Application. An applicant for a student loan servicer license must file a written application form, prescribed by the commissioner, along with:
1. a $1,000 nonrefundable license fee;
2. a notarized financial statement prepared by a certified public accountant or a public accountant, the accuracy of which is attested to by someone authorized to execute such documents;
3. information related to any administrative, civil, or criminal findings by any governmental jurisdiction against the applicant; and
4. an $800 nonrefundable investigation fee.
The bill allows the commissioner to conduct a state and national criminal history records check of the applicant and each partner, member, officer, director, and principal employee of such applicant.
Under the bill, the commissioner, upon receipt of the application and the fees, must investigate the applicant's (1) financial condition and responsibility, (2) financial and business experience, and (3) character and general fitness.
The bill allows the commissioner to issue a student loan servicer license if he finds that the:
1. applicant's financial condition is sound;
2. business will be conducted honestly, fairly, equitably, carefully, efficiently, and consistent with the purposes of the law;
3. applicant and the applicant's control persons (e.g., partner or senior executive) are qualified and of good character;
4. no one on behalf of the applicant has made a material misstatement or omission in the application; and
5. other similar requirements determined by the commissioner.
License Expiration and Surrender. A student loan servicer license expires at the close of business on September 30 of the odd-numbered year following its issuance, unless it was renewed, surrendered, suspended, or revoked.
Within 15 days after a licensee stops engaging, for any reason, in student loan servicing in any location in the state, such licensee must (1) surrender its license for such location and (2) notify the commissioner in writing. The bill requires the written surrender notice to identify the location where the licensee's records will be stored and the name, address and telephone number of an individual authorized to provide access to the records. Under the bill, a license surrender does not reduce or eliminate the licensee's civil or criminal liability arising from acts or omissions occurring prior to the license surrender.
License Renewal. Under the bill, a student loan servicer license may be renewed after the 24-month period following the initial application filing. The renewal application must be filed on or before September 1 of the year in which the license expires. Any renewal application filed after that date must include a $100 late fee and any such filing is deemed to be timely and sufficient.
If a license renewal application is filed on or before the license expiration date, it remains effective until the commissioner (1) issues the renewal license or (2) notifies the licensee in writing of his refusal to renew the license, including the grounds for denial. The commissioner may refuse to renew a license for the same reasons he may deny an initial license application.
Automatic Suspension. The commissioner may automatically suspend the license or the renewal license if payment of the required fees is returned or not accepted. The commissioner must give the licensee notice of the automatic suspension, pending proceedings for revocation or refusal to renew and an opportunity for a hearing set out in law.
Information Update. Under the bill, an applicant or licensee must notify the commissioner, in writing, of any change in the information provided in its initial license application or its most recent license renewal application, as applicable, within 10 business days after the information changed.
Abandoned Application. The bill allows the commissioner to deem an application abandoned if the applicant fails to respond to any request for information required by law. The commissioner must notify the applicant, in writing, that if the information is not submitted within 60 days from the request date, the application will be deemed abandoned. Application fees for abandoned applications must not be refunded. However, the bill allows the applicant to submit a new application with another fee.
§ 4 ─ Name and Location
A student loan servicer licensee must use the name and business address stated in its license. The licensee must (1) maintain one place of business under the license and (2) notify the commissioner, in writing, of any location change. The bill allows the commissioner to issue more than one license to a compliant licensee. A license is not transferable or assignable.
§ 5 ─ Records Retention
Student loan servicer licensees, as well as persons exempt from licensure, must maintain adequate records of each student education loan transaction for (1) at least two years following the final payment on the loan or the assignment of such loan, whichever occurs first, or (2) a longer period as required under law.
Under the bill, if requested by the commissioner, a student loan servicer must make such records available or send them to the commissioner within five business days of the request. The commissioner may allow additional time, if requested. The records must be sent by (1) registered or certified mail, return receipt requested, or (2) any express delivery carrier that provides a dated delivery receipt.
§ 9 ─ Compliance with Federal law
A student loan servicer must comply with all applicable federal laws and regulations, including the federal Truth-in-Lending Act and its implementing regulations. The bill (1) considers a violation of any such federal law or regulation to be a violation of its provisions and (2) authorizes the commissioner to take enforcement action against any violator, in addition to any other remedies available under the law.
§ 6 ─ Prohibited Practices
The bill prohibits a student loan servicer from:
1. employing, directly or indirectly, any scheme, device, or artifice to defraud or mislead borrowers;
2. engaging in any unfair or deceptive practice toward any person or misrepresenting or omitting any material information in connection with the servicing of a student education loan, including any fees on payments due;
3. obtaining property by fraud or misrepresentation;
4. knowingly misapplying or recklessly applying student education loan payments to the outstanding balance of a student education loan;
5. knowingly or recklessly providing inaccurate information to a credit bureau, causing harm to a borrower's creditworthiness;
6. failing to report both the favorable and unfavorable payment history of the borrower to a nationally recognized consumer credit bureau at least annually if the student loan servicer regularly reports information to a credit bureau;
7. refusing to communicate with an authorized representative of the borrower who provides a written authorization signed by the borrower (the student loan servicer is allowed to adopt procedures to verify that the representative is authorized to act on behalf of the borrower); and
8. negligently making any false statement or knowingly and willfully omitting a material fact in connection with any information or reports filed with a governmental agency or in connection with any investigation conducted by the commissioner or another government agency.
§§ 7-10 ─ COMMISSIONER'S OVERSIGHT AND AUTHORITY
§ 7 ─ Investigation and Examination
The bill allows the commissioner to conduct investigations and examinations for purposes of initial licensing, license renewal, license suspension, license revocation or termination, or any general or specific inquiry or investigation to determine compliance with the law.
It requires the commissioner to have full access to any books, accounts, records, files, documents, information, or evidence relevant to the inquiry or investigation regardless of the location, possession, control or custody of such documents, information or evidence. These include the applicant's criminal, civil, administrative, personal, and credit history. The bill allows the commissioner to direct, subpoena, or order the attendance of and examine under oath any person whose testimony may be required or any books, accounts, records, files, or documents he deems relevant.
The commissioner may (1) control access to any documents and records of the student loan servicer licensee or person under examination or investigation and (2) 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. The bill prohibits the removal or attempted removal of any of the documents and records during the control period, except by court order or with the commissioner's consent. The student loan servicer licensee or owner of the documents and records must have access to the documents or records as needed to conduct its ordinary business affairs, unless the commissioner has reason to believe that the documents or records risk being altered or destroyed.
Under the bill, the commissioner may:
1. retain attorneys, accountants, other professionals, and specialists as examiners, auditors, or investigators to conduct or assist in the conduct of examinations or investigations;
2. enter into agreements or relationships with other government officials or regulatory associations in order to improve efficiencies and reduce regulatory burden by sharing resources, standardized or uniform methods or procedures, and documents, records, information, or evidence obtained under his authority;
3. use, hire, contract, or employ public or privately available analytical systems, methods, or software to examine or investigate the student loan servicer licensee;
4. accept and rely on examination or investigation reports made by other government officials; and
5. accept audit reports made by an independent certified public accountant for the student loan servicer licensee in the course of the part of the examination covering the same general subject matter as the audit, and incorporate the audit report in the commissioner's report of examination, report of investigation, or other writing.
A student loan servicer licensee or person subject to investigation or examination under this bill may not knowingly withhold, abstract, remove, mutilate, destroy, or hide any books, records, computer records, or other information.
§§ 8-10 ─ Enforcement
The commissioner may suspend, revoke, or refuse to renew any student loan servicer license or take any other action for any reason that would be sufficient grounds for him to deny an application for the license. If the license is surrendered, revoked, or suspended before it expires, the commissioner may not refund any portion of the license fee.
The commissioner may take any action allowed under state banking laws against any person whenever it appears to him that the person has violated, is violating, or is about to violate the law. By law such actions include sending notice of a violation after holding an investigation, offering a hearing on the matter, imposing civil penalties up to $100,000 per violation, issuing orders of restitution, and other actions.
The bill requires the commissioner to adopt implementing regulations.
§ 1 ─ COMMISSIONER'S REPORTING
The commissioner must report annually, starting by January 1, 2016, to the Banking and Higher Education Committees on:
1. the implementation of the ombudsman position and the borrower education course,
2. the overall effectiveness of the ombudsman position, and
3. additional steps needed for the department to gain regulatory control over the licensing and oversight of student loan servicers.
The bill does not establish an account for the commissioner to use for the funding allocated from the fees that will pay for the Student Loan Ombudsman position and the development of the student loan borrower education course.