PA 15-162—sHB 6915

Banking Committee

AN ACT CONCERNING A STUDENT LOAN BILL OF RIGHTS

SUMMARY: This act requires the banking commissioner, within available appropriations, to create the position of “student loan borrower ombudsman” in the Banking Department 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 and within available appropriations, to implement and maintain a prescribed student loan borrower education course.

It also establishes a separate non-lapsing account in the Banking Fund, called the student loan ombudsman account, to be funded by student loan servicers' licensing and investigation fees and any other money required by law. The act requires the commissioner to use money in the account for the ombudsman position and the education course.

The act establishes licensure requirements and standards of conduct for student loan servicers. It exempts banks, credit unions, and certain of their subsidiaries from the servicer licensure requirements. The commissioner (1) must adopt regulations implementing the servicer provisions and (2) may conduct investigations and examinations and take enforcement action against violators.

The commissioner must also report annually, starting by January 1, 2016, to the Banking and Higher Education and Employment Advancement committees on, among other things, the implementation of the ombudsman position and the licensing and oversight of student loan servicers.

EFFECTIVE DATE: July 1, 2016, except the provisions on the ombudsman position and the definitions are effective October 1, 2015.

2 ─ DEFINITIONS

Under the act, 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.

A "student education loan" is any loan used mainly for financing education or other school-related expenses.

A "student loan servicer" is any person, regardless of location, 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 borrower according to the terms of a loan,

2. applying the payments according to the loan terms, and

3. performing other administrative services.

1 ─ STUDENT LOAN OMBUDSMAN POSITION

General Duties

Under the act, the ombudsman, in consultation with the commissioner, must:

1. receive and review complaints from borrowers;

2. attempt to resolve the complaints, including doing so in collaboration with institutions of higher education, loan servicers, and any other participants in student loan lending, including the University of Connecticut, Board of Regents for Higher Education, Office of Higher Education, or Connecticut Higher Education Supplemental Loan Authority;

3. compile and analyze complaint 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 on 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 help those with servicing concerns, such as borrowers, potential borrowers, state higher education institutions, and loan servicers; and

9. take any other actions necessary to fulfill his or her duties.

Student Loan Borrower Education Course

The act requires the ombudsman, in consultation with the commissioner and within available appropriations, to establish a student loan borrower education course by October 1, 2016. The course must include educational presentations and material about student education loans. It must cover key loan terms, documentation requirements, monthly payment obligations, income-based repayment options, loan forgiveness, and disclosure requirements.

3-6 & 9 ─ STUDENT LOAN SERVICERS

3 ─ Licensure

The act generally requires any person acting as a student loan servicer to obtain a license from the commissioner.

Exemptions. The act 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 is wholly owned by the same bank or credit union.

Application. An applicant for a student loan servicer license must file a written application, prescribed by the commissioner, along with:

1. a $1,000 nonrefundable license fee;

2. an $800 nonrefundable investigation fee;

3. a notarized financial statement prepared by a certified public accountant or public accountant, the accuracy of which is attested to by someone authorized to execute such documents; and

4. any history of criminal convictions (including sufficient related information) of the applicant and each partner, member, officer, director, and principal employee of such applicant.

The act 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 the applicant.

Under the act, the commissioner, on receipt of the application and fees, must also investigate the applicant's (1) financial condition and responsibility, (2) financial and business experience, and (3) character and general fitness.

The act allows the commissioner to issue a student loan servicer license if he finds that:

1. the applicant's financial condition is sound;

2. the business will be conducted honestly, fairly, equitably, carefully, efficiently, consistent with the act's purposes and intent, and in a manner commanding the community's confidence and trust;

3. the applicant and the applicant's control persons (e. g. , partner, senior executive, or shareholder with 10% of each class of the corporation's securities) are qualified and of good character;

4. no one on behalf of the applicant has knowingly made a material misstatement or omission in the application; and

5. the applicant meets other similar requirements as 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 immediately following its issuance, unless it was renewed, surrendered, suspended, or revoked.

Within 15 days after a licensee, for any reason, stops engaging in student loan servicing anywhere in the state, such licensee must (1) surrender its license for such location and (2) notify the commissioner in writing. The act requires the written 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 act, a license surrender does not reduce or eliminate the licensee's civil or criminal liability arising from acts or omissions occurring before the surrender.

License Renewal. Under the act, a student loan servicer license may be renewed biennially. The renewal application must be filed by September 1 of the year in which the license expires and must be accompanied by all documents and fees required for the initial licensure. 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 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 must automatically suspend the initial or renewal license if payment of the required fees is returned or not accepted by the bank. 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.

Information Update. Under the act, an applicant or licensee must notify the commissioner in writing of any change in the information provided in its initial license application or most recent license renewal application, within 10 business days after the information changed.

Abandoned Application. The act allows the commissioner to deem an application abandoned if the applicant fails to respond to any request for information the act or regulations require. 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 are not refunded. However, the act allows the applicant to submit a new application with the required filing fees.

4 ─ Name and Location

Under the act, a 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 act allows the commissioner to issue more than one license to a licensee. A license is not transferable or assignable.

5 ─ Record Retention

Student loan servicer licensees, as well as persons exempt from licensure (e. g. , banks, credit unions), 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 the loan, whichever occurs first, or (2) a longer period as required under law.

Under the act, if requested by the commissioner, a loan servicer must make the 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 loan servicer must comply with all applicable federal laws and regulations, including the federal Truth-in-Lending Act and its implementing regulations. The act (1) considers a violation of any such federal law or regulation to be a violation of this requirement and (2) authorizes the commissioner to take enforcement action against any violator, in addition to any other legal remedies.

6 ─ Prohibited Practices

The act 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, payments due, loan terms, or borrower obligations;

3. obtaining property by fraud or misrepresentation;

4. knowingly misapplying or recklessly applying student education loan payments to a loan's outstanding balance;

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 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 servicer is allowed to adopt procedures to verify that the representative is authorized to act on the borrower's behalf); 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 government 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 act allows the commissioner to conduct investigations and examinations for the purposes of initial licensing; license renewal, suspension, revocation, or termination; or any general or specific inquiry or investigation to determine compliance with the act. The commissioner may review, investigate, or examine any loan servicer or person subject to the act's provisions as often as necessary to carry out its purpose.

The act requires the commissioner to have full access to any books, accounts, records, files, documents, information, or evidence relevant to an inquiry or investigation regardless of the location, possession, control, or custody of the documents, information, or evidence. These records include the applicant's criminal, civil, administrative, personal, and credit history. The act allows the commissioner to direct, subpoena, or order the (1) attendance of and examine under oath any person whose testimony may be required and (2) production of any books, accounts, records, files, or documents he deems relevant.

The commissioner may (1) control access to any documents and records of the 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 them in the place where they are usually kept. The act 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 servicer licensee or owner of the documents and records must have access to them as needed to conduct its ordinary business, unless the commissioner has reason to believe there is a risk that the documents or records will be altered or destroyed to conceal a violation.

Under the act, the commissioner may:

1. retain attorneys, accountants, other professionals, and specialists as examiners, auditors, or investigators to conduct or assist in conducting examinations or investigations;

2. enter into agreements or relationships with other government officials or regulatory associations 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 for, or employ public or privately available analytical systems, methods, or software to examine or investigate a person subject to the act;

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 licensee or person on the same general subject matter as the audit, and incorporate the audit report in the commissioner's report of examination or investigation, or other writing.

A loan servicer licensee or person subject to investigation or examination under this act may not knowingly withhold, abstract, remove, mutilate, destroy, or hide any books, records, computer records, or other information.

Under the act, the commissioner's authority remains in effect whether a loan servicer licensee or person subject to its provisions acts or claims to act (1) under any state licensing or registration law or (2) without such authority.

8 ─ Enforcement

Under the act, the commissioner may suspend, revoke, or refuse to renew any student loan servicer license, or take any other action, in accordance with existing procedures, for any violations or any reason that would be sufficient grounds for him to deny a license application. 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 when it appears to him that a (1) person violated, is violating, or is about to violate the act or any related regulations or (2) licensee or any owner, director, officer, member, partner, shareholder, trustee, employee, or agent of such licensee has committed fraud, engaged in dishonest activities, or made any misrepresentation. By law, such actions include sending notice of a violation after holding an investigation, offering to hold a hearing on the matter, imposing civil penalties up to $100,000 per violation, issuing orders of restitution, and other actions.

1 ─ COMMISSIONER'S REPORTING

Under the act, the commissioner must report annually, starting by January 1, 2016, to the Banking and Higher Education and Employment Advancement committees on:

1. the implementation of the ombudsman position and related provisions,

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.

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