Researcher: JC Page 1 4/6/21
OLR Bill Analysis
SB 716
AN ACT CONCERNING THE FEDERAL STUDENT LOAN
BORROWERS' BILL OF RIGHTS ACT OF 2019.
SUMMARY
This bill requires private student loan servicers to provide certain
information to private student loan borrowers and cosigners regarding
(1) borrower and cosigner rights and responsibilities, (2) cosigner
release eligibility, and (3) the cosigner release application process.
The bill prohibits any student loan servicer licensee or control
person from engaging in an abusive act or practice when servicing a
student loan, as described in the federal Dodd-Frank Wall Street
Reform and Consumer Protection Act (P.L. 111-203).
It also allows student loan borrowers, classes of student loan
borrowers, or legal representatives of either to bring a lawsuit against a
student loan servicer for violating the state's requirements for student
loan servicers.
The bill also expands the definition of "servicing" in state student
loan servicer law to include (1) maintaining account records for and
communicating with a student loan borrower during the period when
no scheduled loan payments are required and (2) interacting with a
student loan borrower to facilitate the loan, including assisting them
from defaulting on loan obligations. Under current law, “servicing”
under this law means, among other things, (1) receiving scheduled
periodic payments from a student loan borrower under a student
education loan’s terms or (2) applying the principal and interest
payments and other payments to the amounts received from a student
loan borrower, as under a student education loan’s terms. The bill
narrows this definition to require both these actions in order to be
considered servicing. 2021SB-00716-R000279-BA.DOCX
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EFFECTIVE DATE: October 1, 2021
DODD-FRANK WALL STREET RE FORM AND CONS UMER
PROTECTION ACT
The bill prohibits any student loan servicer licensee or control
person from engaging in an abusive act or practice when servicing a
student loan, as described in the federal Dodd-Frank Wall Street
Reform and Consumer Protection Act (P.L. 111-203, § 1031).
Under the act, an act or practice is abusive if it materially interferes
with a consumer’s ability to understand a term or condition of a
consumer financial product or service. It is also abusive if it takes
unreasonable advantage of (1) a lack of understanding on the
consumer’s part of the material risks, costs, or conditions of the
product or service; (2) the consumer’s inability to protect his or her
own interests in selecting or using a consumer financial product or
service; or (3) the consumer’s reasonable reliance on a covered person
to act in his or her best interests.
PRIVATE STUDENT LOAN SERVICER NOTIFICATIO N
REQUIREMENTS
Borrower and Cosigner Rights and Responsibilities
The bill requires a private loan servicer to provide certain
information to student loan borrowers and cosigners about their rights
and responsibilities (1) before sending the first loan billing statement
or (2) immediately after receiving a transferred or assigned private
education loan. This information includes:
1. how the loan obligation will appear on a cosigner's consumer
report;
2. how cosigners will be notified if the loan becomes delinquent,
including how they can cure the delinquency to avoid a
negative credit rating; and
3. cosigner release eligibility, including the number of on-time
payments and other criteria required for release approval. 2021SB-00716-R000279-BA.DOCX
Researcher: JC Page 3 4/6/21
Under the bill, a "cosigner" is any individual who is liable for the
obligation of another without compensation, regardless of how the
contract or instrument designates the obligation. But it does not
include an obligation under a private education loan extended to
consolidate a consumer's pre-existing private education loans. A
cosigner includes any person whose signature is requested as a
condition to grant credit or forbear on collection but does not include
an individual’s spouse whose signature is needed to perfect the
security interest in a loan (15 U.S.C. § 1650(a)).
A "consumer report" is any written, oral, or other communication of
any information by a consumer reporting agency bearing on a
consumer's credit worthiness, credit standing, credit capacity,
character, general reputation, personal characteristics, or mode of
living that is used or expected to be used or collected to serve as a
factor in establishing the consumer's eligibility for (1) credit or
insurance to be used primarily for personal, family, or household
purposes; (2) employment purposes; or (3) any other purpose specified
by federal law (15 U.S.C. § 1681a).
A “private education loan” is a loan provided by a private
education lender that is (1) not made, insured, or guaranteed under
Title IV of the Higher Education Act of 1965 and (2) expressly issued
for postsecondary educational expenses to a borrower, regardless of
whether it is provided through the educational institution that the
student attends or directly to the borrower for the private educational
lender. It does not include a credit extension under an open end
consumer credit plan, a reverse mortgage transaction, a residential
mortgage, or any other loan secured by real property or dwelling (15
U.S.C. § 1650(a)).
Annual Notification
Under the bill, a private student loan servicer must annually send
written notice to all private student loan borrowers and cosigners with
information on cosigner release, including the (1) criteria for release
approval and (2) release application process. 2021SB-00716-R000279-BA.DOCX
Researcher: JC Page 4 4/6/21
Cosigner Release
Eligibility. The bill requires the private loan servicer, upon the
borrower satisfying the applicable consecutive on-time payment
requirement, to send in writing to the borrower and cosigner (1) a
notification that the borrower satisfied the on-time payment
requirement and the cosigner may be eligible for release and (2)
information on the cosigner release application process and any
additional criteria that a cosigner must satisfy to be eligible for release.
The loan servicer must send the information via mail (e.g. the U.S.
Postal Service), or email if the student has elected to receive electronic
communications from the servicer.
Incomplete Application. Under the bill, the servicer must provide
written notification to the student loan borrower and cosigner if the
cosigner release application is incomplete and provide (1) a description
of the missing or additional information required and (2) the date by
which the borrower and cosigner must provide the missing
information.
Approval or Denial of Application. The bill requires the servicer,
within 30 days after receiving a cosigner release application, to provide
the borrower and cosigner written notice of the application's approval
or denial. If the application was denied, the notice must inform the
borrower and cosigner that they can request all documents and
information used in the decision, including (1) the credit score
threshold the servicer used, (2) the borrower's or cosigner's consumer
report and credit score, and (3) any other relevant or specific
document. The servicer must also provide the borrower and cosigner
with any adverse action notices required under federal law if the
denial was based on any information in a consumer report.
Under the bill, the servicer must also include information on
cosigner release, including the (1) criteria for release approval and (2)
release application process, in any response to a cosigner's release
application.
COSIGNER RELEASE APP LICATIONS 2021SB-00716-R000279-BA.DOCX
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Servicer Response
The bill requires private student loan servicers, when responding to
a cosigner release application, to refrain from the following:
1. imposing any restrictions on a borrower or cosigner that may
permanently prevent them from qualifying for a cosigner
release, including restricting the number of times a borrower or
cosigner can apply, and
2. requiring a borrower to make more than 12 consecutive on-time
payments as part of the eligibility criteria for cosigner release.
Servicers must also refrain from imposing any negative
consequences on a borrower or cosigner during the 60 days after
issuing a notice for incomplete information or until a final decision for
cosigner release is made. “Negative consequences” include (1)
imposing additional eligibility criteria, (2) negative credit reporting, (3)
losing eligibility for cosigner release, (4) late fees, (5) interest
capitalization, or (6) other financial penalties or injury.
Consecutive On-Time Payment Requirement
Under the bill, a private student loan servicer must consider any
borrower who paid the equivalent of 12 months of principal and
interest during any 12-month period as satisfying the consecutive on-
time payment requirement, even if the borrower did not make
monthly payments during the 12-month period.
The bill requires a servicer, upon receiving a borrower’s or
cosigner’s request for a change that results in restarting the count of
consecutive on-time payments required for cosigner release eligibility,
to provide the borrower and cosigner (1) written notification about the
change’s impact on cosigner eligibility and (2) a chance to withdraw or
reverse the change to avoid it.
Cosigner Appeal of Release Denial
The bill requires the student loan servicer to provide a borrower or
cosigner (1) the right to request an appeal of a release denial; (2) an
opportunity to submit additional information or documentation that 2021SB-00716-R000279-BA.DOCX
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the borrower has the ability, willingness, and stability to make the
payment obligations; and (3) the right to request that a different loan
servicer review and make a determination on the release application.
RECORD MANAGEMENT
The bill requires a student loan servicer to establish and maintain a
comprehensive record management system designed to ensure the
accuracy, integrity, and completeness of cosigner release application
data and information. The system must include (1) the number of
applications received, (2) the application approval and denial rate, and
(3) the primary reasons for application denial.
RELEASE OF DISABLED COSIGNER
If a cosigner has a total and permanent disability, and unless
otherwise expressly prohibited under the loan agreement terms, the
bill requires a private student loan servicer to (1) release the cosigner
from his or her loan repayment obligation upon receiving notification
of the disability and (2) refrain from requiring a new cosigner to be
added to the loan after releasing the original cosigner. The cosigner's
disability must be determined by a federal or state agency or doctor of
medicine or osteopathy legally authorized to practice in the state.
ACCESS TO RECORDS AN D DOCUMENTS
The bill requires private student loan servicers to provide the
cosigner with access to the same loan documents and records available
to the borrower. Under the bill, if the borrower has electronic access to
private loan documents and records, the servicer must extend this
same access to the cosigner.
CIVIL ACTION
The bill allows private student loan borrowers, or their legal
representative, to bring a lawsuit in Superior Court for violations of
state student loan servicer requirements. It also allows them to bring a
class action lawsuit in Superior Court on behalf of themselves and
other similarly situated borrowers to recover damages. The borrower
does not have to exhaust administrative remedies before bringing the
action. 2021SB-00716-R000279-BA.DOCX
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The bill allows a court, after finding that a student loan servicer
committed the alleged violations, to award actual damages, reasonable
attorney's fees, court costs, punitive damages, property restitution, and
appropriate equitable relief. Under the bill, the court must award
treble damages to the borrower if it finds that the student loan servicer
engaged in conduct that substantially interfered with (1) the
borrower's right to an alternative payment arrangement, loan
forgiveness, cancellation, or student loan discharge or (2) another
financial benefit set out in the borrower's promissory note or the
Higher Education Act of 1965 or its regulations. The remedies are in
addition to any other remedies state or federal law provide.
COMMITTEE ACTION
Higher Education and Employment Advancement Committee
Joint Favorable
Yea 22 Nay 0 (03/18/2021)