California Assembly Bill AB2251 Amended / Bill

 BILL NUMBER: AB 2251AMENDED BILL TEXT AMENDED IN ASSEMBLY APRIL 20, 2016 AMENDED IN ASSEMBLY MARCH 28, 2016 INTRODUCED BY Assembly Member Mark Stone FEBRUARY 18, 2016 An act to  amend Section 22000 of, to amend the heading of Division 9 (commencing with Section 22000) of, and to add Chapter 3.5 (commencing with Section 22660) to Division 9 of,   add Division 12.5 (commencing with Section 28100) to  the Financial Code, relating to student loan servicers. LEGISLATIVE COUNSEL'S DIGEST AB 2251, as amended, Mark Stone. Student loan servicers: licensing and regulation: Student Loan Borrower's Bill of Rights.  (1) The California Finance Lenders Law   (1)     Existing law establishes the Department of Business Oversight as headed by the Commissioner of Business Oversight who, among other things,  generally provides for the licensure and regulation of persons who are engaged in  various consumer financial   businesses, including, but not limited to,  the business of making consumer or commercial  loans by the Commissioner of Business Oversight, as specified, and makes a willful violation of its provisions a crime.   loans.  This bill would  expand the California Finance Lenders Law and the authority of the commissioner to include   enact the Student Loan Borrower's Bill of Rights providing for  the licensure, regulation, and oversight of student loan servicers engaging in the servicing of student education loans for student loan borrowers, as those terms are defined,  and would rename the law the California Finance Lenders Law and Student Loan Borrower's Bill of Rights.   by the commissioner.  The bill would prohibit a person from acting as a student loan servicer without a license, unless exempt from the licensing  requirement.   requirement and would require a licensee to provide specific services to a student loan borrower.  The bill would require a person applying for a license to, among other things, pay an unspecified fee to pay the actual costs for the investigation of the application and to sign the application under penalty of perjury. By expanding the scope of the crime of  perjury and the basis for a violation of the California Finance Lenders Law,   perjury,  this bill would impose a state-mandated local program. The bill would specify the basis for the commissioner to deny, revoke, or suspend a license that includes, among other basis, a failure to comply with an investigation by the commissioner. The bill would make legislative findings in support of its provisions. (2) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. The Legislature finds and declares all of the following: (a) Student loan debt is a national crisis. More than 40,000,000 people in the United States owe some amount of student educational loan debt. Total student educational debt in the United States currently exceeds $1.2 trillion, surpassing both the amount of credit card debt and car loans. With college costs continuing to rise, student educational debt continues to rise, and there is no reduction in sight. (b) While California's financial aid programs are some of the strongest in the nation and our state's college graduates have among the lowest educational debt burdens, California students and graduates still incur significant debt. According to The  College  Institute for College  Access  & Success, 55 percent of California's graduating class of 2014 has student educational loan debt. According to the United States Department of Education, as of January 2015, there were approximately 4,156,00 student educational loan borrowers in California, and the total student educational loan debt outstanding for Californians was approximately $1.2 billion. (c) Student educational loan debt is a hindrance on the state's economy, preventing borrowers from achieving financial independence, buying property, and starting businesses. (d) Student educational loan servicers administer student loans, serving as a critical link between borrowers and lenders in managing accounts, processing payments, and communicating directly with borrowers. Despite this critical relationship, according to the federal Consumer Financial Protection Bureau (CFPB), there are no consistent, marketwide federal standards for student educational loan servicing. (e) The CFPB released a report in September 2015 that found that student educational loan borrowers encounter servicers that discourage borrower-friendly alternative payment plans, fail to respond to questions and payment processing errors, and fail to provide sufficient information to borrowers regarding payments, benefits, interest rates, and other charges. (f) It is the intent of the Legislature to promote all of the following: (1) Meaningful access to federal affordable repayment and loan forgiveness benefits. (2) Reliable information about student educational loans and loan repayment options. (3) Quality customer service and fair treatment.  SEC. 2.   The heading of Division 9 (commencing with Section 22000) of the Financial Code is amended to read: DIVISION 9. CALIFORNIA FINANCE LENDERS LAW AND THE CALIFORNIA STUDENT LOAN BORROWER'S BILL OF RIGHTS   SEC. 3.   Section 22000 of the Financial Code is amended to read: 22000. This division is known and may be cited as the "California Finance Lenders Law and the California Student Loan Borrower's Bill of Rights."   SEC. 4.   Chapter 3.5 (commencing with Section 22660) is added to Division 9 of the Financial Code, to read: CHAPTER 3.5. CALIFORNIA STUDENT LOAN BORROWER'S BILL OF RIGHTS   SEC. 2.   Division 12.5 (commencing with Section 28100) is added to the   Financial Code   , to read:  DIVISION  12.5.   California Student Loan Borrower's Bill of Rights   22660.   28100.  For the purposes of this chapter, the following terms shall have the following meanings: (a) "Control" means the possession, directly or indirectly, of the power to direct, or cause the direction of, the management and policies of a licensee under this chapter, whether through voting or through the ownership of voting power of an entity that possesses voting power of the licensee, or otherwise. Control is presumed to exist if a person, directly or indirectly, owns, controls, or holds 10 percent or more of the voting power of a licensee or of an entity that owns, controls, or holds, with power to vote, 10 percent or more of the voting power of a licensee. No person shall be deemed to control a licensee solely by reason of his or her status as an officer or director of the licensee. (b) "Department" means the Department of Business Oversight. (c) "Engage in the business" means, without limitation, servicing student education loans, including, but not limited to, the dissemination to the public, or any part of the public, by means of written, printed, or electronic communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communications media, of any information relating to the servicing of student loans. (d) "In this state" includes any activity of a person relating to servicing a student education loan that is directed to a person residing in the state. (e) "Licensee" means a person licensed under this chapter. (f) "Person" means a natural person, a sole proprietorship, a corporation, a partnership, a limited liability company, an association, a trust, a joint venture, an unincorporated organization, a joint stock company, a government, or a political subdivision of a government, and any other entity.  (g) "Qualified written request" means a written correspondence made by a student loan borrower, other than notice on a payment medium supplied by the student loan servicer, transmitted by mail, facsimile, or electronically through an email address or Internet Web site designated by the student loan servicer to receive communications from student loan borrowers that does all of the following:   (1) Enables the student loan servicer to identify the name and account of the student loan borrower.   (2) Includes, to the extent applicable, either of the following:   (A) Sufficient detail regarding the information sought by the student loan borrower.   (B) A statement of the reasons for the belief of the student loan borrower that there is an error regarding the account of the student loan borrower.   (g)   (h)  "Servicing" means any of the following activities: (1) Receiving any scheduled periodic payments from a student loan borrower pursuant to the terms of a student education loan. (2) Applying the payments of principal and interest and other payments with respect to the amounts received from a student loan borrower, as may be required pursuant to the terms of a student education loan. (3) Performing other administrative services with respect to a student education loan.  (h)   (i)  "Student education loan" means any loan primarily for personal use to finance education or other school-related expenses.  (i)   (j)  "Student loan borrower" means either of the following: (1) A person who is resident of the state who has received or agreed to pay a student education loan. (2) A person who is a resident of the state who shares responsibility for repaying a student education loan with a person described in paragraph (1).  (j)   (k)  "Student loan servicer" means, to the extent authorized by federal law,  an entity or   a  person, wherever located, responsible for the servicing of a student educational loan for a student loan borrower.  "Student loan servicer" shall not include a bank or credit union.   22660.5. A licensee shall provide a student loan borrower with all of the following: (a) Accurate information about all the student education loan repayment options applicable to the student loan borrower. (b) Quality customer service and fair treatment. (c) Complete and accurate information on federal affordable repayment and loan forgiveness benefits applicable to the student loan borrower.   22660.10.  28102.  (a) A person shall not act as a student loan servicer, directly or indirectly, without a license from the commissioner pursuant to this chapter. (b) Notwithstanding subdivision (a), the following persons are exempt from the licensing requirement in subdivision (a): (1) A bank, trust company, insurance company, or industrial loan company doing business under the authority of, or in accordance with, a license, certificate, or charter issued by the United States or any state, district, territory, or commonwealth of the United States that is authorized to transact business in this state. (2) A federally chartered savings and loan association, federal savings bank, or federal credit union that is authorized to transact business in this state. (3) A savings and loan association, savings bank, or credit union organized under the laws of this or any other state that is authorized to transact business in this state. (4) A wholly owned service corporation of a savings and loan association or savings bank organized under the laws of this state or the wholly owned service corporation of a federally chartered savings and loan association or savings bank that is authorized to transact business in this state. (c) A person shall file an application for a license under this chapter with the commissioner to engage in servicing student education loans as a student loan servicer in this state. (d) A licensee shall not engage in servicing a student education loan as a student loan servicer under a name other than the name that appears on a license. (e) The commissioner may promulgate regulations on the business activity that may be conducted at a location where a licensee engages in servicing student education loans to prohibit the conduct of business activity that facilitates evasions of the purposes of this chapter. (f) A licensee shall make available to the commissioner all of the licensee's records pertaining to servicing a student educational loan for a student loan borrower, including, but not limited to, all books, accounts, papers, and files, regardless of the location of those records, within 10 calendar days of a request from the commissioner.  22660.15.   28104. (a) The commissioner shall issue a license to a person to engage in business as a student loan servicer if all of the following requirements have been met: (1) The person filed a complete application for a license in a form prescribed by the commissioner. (2) The person signed the application under penalty of perjury. (3) The person made a payment of (____) as a reasonable fee to pay the actual costs for the department to investigate the application. (4) The department has completed an investigation of the application. (b) Upon reasonable notice and opportunity to be heard, the commissioner may deny an application of a person to engage in business as a student loan servicer for any of the following reasons: (1) The person made a false statement of a material fact on the application. (2) The person or an officer, director, general partner, or other person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the person applying for the license has, within the last 10 years of the date of application, committed any act involving dishonesty, fraud, or deceit, or been convicted of, or pleaded nolo contendere to, a crime substantially related to the qualifications, functions, or duties of a person engaged in the business of servicing student education loans. (3) The person or an officer, director, general partner, or other person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the person applying for the license has violated any provision of this chapter. (c) The commissioner shall, within 60 days from the filing of a full and complete application for a license, including the receipt of background and investigative reports from the Department of Justice or other government agencies, and the payment of required fees, either grant a license pursuant to this chapter or provide a written explanation for the denial. (d) The proceedings for a denial of a license shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.  22660.20.   28106.  (a) A license shall remain in effect until the license is either suspended or revoked by the commissioner or surrendered by the licensee. The commissioner may suspend or revoke a license issued under this chapter if the commissioner finds that the licensee violated any provision of this chapter or if any fact or condition exists which, if it had existed at the time of the initial application for the license, clearly would have warranted a denial of the license.  The commissioner shall not refund a license fee if the license is surrendered, revoked, or suspended prior to the expiration of the period for which it was issued.  (b) A licensee that ceases to engage in the business regulated by this chapter and desires to no longer be licensed shall inform the commissioner in writing and, at that time, surrender the license and all other indicia of license to the commissioner. The licensee shall file a plan for the withdrawal from regulated business, and the plan shall include a timetable for the disposition of the business. The plan shall also include a closing audit, review, or other agreed-upon procedures performed by an independent certified public accountant prescribed by rule or order of the commissioner. Upon receipt of the written notice and plan, the commissioner shall review the plan and, if satisfactory to the commissioner, shall accept the surrender of the license. A license is not surrendered until its tender is accepted in writing by the commissioner after a review, and a finding has been made on the licensee's plan required to be filed by this section, and a determination has been made that there is no violation of this chapter. (c) The licensee shall notify the commissioner, in writing, of any change in the information provided in the application for a license, as applicable, not later than 10 business days after the occurrence of the event that results in the information becoming inaccurate. (d) The commissioner may deem an application for a license abandoned if the applicant fails to respond to any request for information required by the commissioner or department during an investigation of the application. The commissioner shall notify the applicant, in writing, that if the applicant fails to submit responsive information no later than 60 days after the date the request for information was made, the application shall be deemed abandoned. An application filing fee paid prior to the date an application is deemed abandoned shall not be refunded. Abandonment of an application pursuant to this subdivision shall not preclude the applicant from submitting a new application and fee for a license. (e) A licensee shall only engage in business as a student loan servicer at the place of business on the license. A change of location of a place of business of a licensee shall require prior written notice to the commissioner. Only one place of business shall be authorized to engage in business under a license. A license shall not be transferable or assignable.  22660.25.   28108.  (a) A licensee shall do all of the following: (1) Maintain staff adequate to meet the requirements of this chapter, as prescribed by regulation or order of the commissioner. (2) File with the commissioner any report required by regulation or order of the commissioner. (3) Comply with the provisions of this chapter, and with any regulation or order of the commissioner. (4) Submit to periodic examination by the commissioner as required by this chapter. (5) Advise the commissioner by amendment to its application of any material judgment filed against, or bankruptcy petition filed by, the licensee within five days of the filing. (6) Comply with all applicable state and federal laws and tax return filing requirements. (7) Comply with any other requirement established by regulation or order of the commissioner.  (b) The commissioner may require an applicant to submit a statement signed under penalty of perjury agreeing to comply with the requirements of this section.   (8) Provide information on an Internet Web site concerning affordable repayment and loan forgiveness options that may be available to the student loan borrower and provide, at least once per calendar year, a written correspondence or email outlining those options, if applicable.   (9) Appoint a single point of contact for a student loan borrower wanting any of the following:   (A) Ability to enter into an agreement for, resolution on an issue concerning, or general information about, a repayment option that requires subsequent submission of supporting documentation.   (B) Modification of the terms of repayment of the student education loan because of hardship.   (10) If the sale, assignment, or other transfer of the servicing of a student education loan results in a change in the identity of the party to whom the student loan borrower is required to send payments, or direct any communications concerning the student education loan to, then the student loan servicer selling, assigning, or otherwise transferring the servicing shall notify the student loan borrower in writing at least 45 days before a student loan borrower is required to send a payment on the student education loan all of the following:   (A) The identity of the new student loan servicer.  (B) The name and address of the new student loan servicer to whom subsequent payments or communications is required to be sent.   (C) The telephone numbers and Internet Web sites of the new student loan servicer.   (D) The effective date of the sale, assignment, or transfer.   (E) The date on which the current student loan servicer will stop accepting payments on the student education loan.   (F) The date on which the new student loan servicer will begin accepting payments on the student education loan.   (11) Respond to a qualified written request by acknowledging receipt of the request within five business days and within 30 business days provide, to the extent possible, by providing information relating to the request and the applicable action the student loan servicer will take to correct the account or an explanation for the reasons the student loan servicer believes the account of the student loan borrower is correct.   (12) Unless otherwise directed by the student loan borrower of a student education loan, upon receipt of a payment, the student loan servicer shall apply amounts in excess of the minimum payment amount first to the interest and fees owed on the payment due date, next to the principal balance of the student education loan balance bearing the highest annual percentage rate, and then to each successive interest and fees and principal balance bearing the next highest annual percentage rate, until the payment is exhausted. A student loan borrower may instruct or expressly authorize the student loan servicer to apply excess payments in a different manner. A student loan borrower may also voluntarily increase the periodic payment amount by, including, but not limited to, increasing his or her recurring electronic payment with the right to return to their original amortization schedule at any time.   (c)   (b)  The commissioner may revoke or suspend a license for a licensee's failure to comply with the requirements of section.  22660.30.   28110.  (a) A licensee shall not do any of the following: (1) Directly or indirectly employ any scheme, device, or artifice to defraud or mislead a student loan borrower. (2) Engage in any unfair or deceptive practice toward any student loan borrower or misrepresent or omit any material information in connection with the servicing of a student education 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 education loan, the terms and conditions of the student education loan agreement, or the student loan borrower's obligations under the student education loan. (3) Obtain property of a student loan borrower by fraud or misrepresentation. (4) Knowingly misapply or recklessly apply payments made by a student loan borrower to the outstanding balance of a student education loan. (5) Knowingly or recklessly provide inaccurate information to a credit bureau regarding a student loan borrower. (6) Fail to report both the favorable and unfavorable payment history of the student loan borrower to a nationally recognized consumer credit bureau at least annually if the loan servicer regularly reports information to a credit bureau. (7) Refuse to communicate with an authorized representative of the student loan borrower who provides a written authorization signed by the student loan borrower, provided the licensee may adopt procedures reasonably related to verifying that the representative is in fact authorized to act on behalf of the student loan borrower. (8) Negligently or intentionally make any false statement or knowingly and willfully make any omission of a material fact in connection with any information or reports filed with the commissioner, the department, or another governmental agency. (b) The commissioner may revoke or suspend a license for a licensee's failure to comply with the requirements of section.  22660.35.   28112.  (a) The commissioner shall have the authority to conduct investigations and examinations as follows: (1) For purposes of initial licensing, license suspension, license revocation, or general or specific inquiry or investigation to determine compliance application requirements, the commissioner may access, receive, and use any books, accounts, records, files, documents, information, or evidence, including, but not limited to, any of the following relating to the business of servicing student education loans: (A) Criminal, civil, and administrative history information. (B) Personal history and experience information, including, but not limited to, independent credit reports obtained from a consumer credit reporting agency. (C) Any other documents, information, or evidence that the commissioner deems relevant to the inquiry or investigation regardless of the location, possession, control, or custody of those documents, information, or evidence. (2) For the purposes of investigating violations or complaints arising under this chapter against a licensee or person, the commissioner may direct, subpoena, or order the attendance of and examine under oath all persons whose testimony may be required about the student education loan or account of the student loan borrower. (b) In making any examination or investigation authorized by this section, the commissioner may control access to any documents and records of the licensee or person under examination or investigation. The commissioner may 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. During the period of control, no person shall remove or attempt to remove any of the documents and records except pursuant to a court order or with the consent of the commissioner. Unless the commissioner has reasonable grounds to believe the documents or records of a licensee or person have been, or are at risk of being,  altered   altered,  or destroyed for purposes of concealing a violation of this chapter, the licensee or owner of the documents and records shall have access to the documents or records as necessary to conduct its ordinary business affairs.  28114. (a) If it appears to the commissioner that a licensee is violating or failing to comply with any law of this state, the commissioner may direct the licensee to comply with the law by an order issued under the commissioner's official seal, or if it appears to the commissioner that any licensee is conducting its business in an unsafe or injurious manner, the commissioner may, in like manner, direct it to discontinue the unsafe or injurious practices. The order shall require the licensee to show cause before the commissioner, at a time and place to be fixed by the commissioner, as to why the order should not be observed. (b) If, upon any hearing held pursuant to subdivision (a), the commissioner finds that the licensee is violating or failing to comply with any law of this state or is conducting its business in an unsafe or injurious manner, the commissioner may make a final order directing it to comply with the law or to discontinue the unsafe or injurious practices. A licensee shall comply with the final order unless, within 10 days after the issuance of the order, its enforcement is restrained in a proceeding brought by the licensee.   28116. (a) The commissioner may issue an order suspending or revoking a license, or taking possession of and placing a licensee in receivership, if after notice and an opportunity for hearing, the commissioner finds any of the following: (1) The licensee is violating this division, a regulation adopted or an order issued under this division, or a condition of approval issued under this division. (2) The licensee does not cooperate with an examination or investigation by the commissioner. (3) The licensee engages in fraud, intentional misrepresentation, or gross negligence in servicing a student education loan. (4) The competence, experience, character, or general fitness of the licensee, or any director, officer, employee, or person in control of a licensee, indicates that it is not in the public interest to permit the student loan servicer to continue to providing servicing of student education loans. (5) The licensee engages in an unsafe or unsound practice. (6) The licensee is insolvent, suspends payment of its obligations, or makes a general assignment for the benefit of its creditors. (7) Any fact or condition exists that, if it had existed at the time when the licensee applied for its license, would have been grounds for denying the application. (b) In determining whether a licensee is engaging in an unsafe or unsound practice, the commissioner may consider the size and condition of the licensee's provision of student education loan servicing, the magnitude of the loss, the gravity of the violation of this division, and the previous conduct of the persons involved.   28118. The commissioner may assess a civil penalty against a person that violates this division or a regulation adopted or an order issued pursuant to this division in an amount not to exceed one thousand dollars ($1,000) for each violation or, in the case of a continuing violation, one thousand dollars ($1,000) for each day or part thereof during which the violation continues, plus this state's costs and expenses for the investigation and prosecution of the matter, including, but not limited to, reasonable attorney's fees.   SEC. 5.   SEC. 3.  No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.