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OLR Bill Analysis
SB 716 (File 279, as amended by Senate "A")
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).
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 to
prevent them from defaulting on loan obligations. Under current law,
“servicing” means, among other things, (1) receiving scheduled
periodic payments from a student loan borrower under terms of a
student education loan or (2) applying principal and interest payments
and other payments to the amounts received from a student loan
borrower, as under the terms of a student education loan. The bill
narrows this definition by requiring both these actions to be
considered servicing.
Lastly, the bill exempts the following from all of the state’s student
loan servicer requirements: banks and credit unions, their wholly
owned subsidiaries, and operating subsidiaries where the owners are
wholly owned by the bank or credit union. Current law already 2021SB-00716-R01-BA.DOCX
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exempts them from the licensing requirements.
*Senate Amendment “A” (1) eliminates the underlying bill’s
provision establishing a private right of action against student loan
servicers for violating the state’s student loan servicer requirements
and (2) exempts banks and credit unions and certain subsidiaries from
the state’s student loan servicer requirements (see Related Bill in
BACKGROUND).
EFFECTIVE DATE: October 1, 2021
DODD-FRANK WALL STREET RE FORM AND CONSUMER
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 the consumer’s (1) lack of understanding of
the material risks, costs, or conditions of the product or service; (2)
inability to protect his or her own interests in selecting or using a
consumer financial product or service; or (3) 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 regarding 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 the cosigner’s consumer
report; 2021SB-00716-R01-BA.DOCX
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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 required criteria.
Under the bill, a “cosigner” is someone who is liable for the
obligation of another without compensation, regardless of how the
contract or instrument designates the obligation, but 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 from a private education lender
that is not made, insured, or guaranteed under Title IV of the Higher
Education Act of 1965 and is 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, reverse mortgage transaction, residential mortgage, or other loan
secured by real property (15 U.S.C. § 1650(a)).
Annual Notification 2021SB-00716-R01-BA.DOCX
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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 criteria for release
approval and release application process.
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 by mail, or email if the
student has elected to receive electronic communications.
Incomplete Application. Under the bill, the servicer must notify
the student loan borrower and cosigner in writing if the cosigner
release application is incomplete and provide (1) a description of the
missing or additional information 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 of 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 document relevant or specific
to the borrower or cosigner. The servicer must also provide any
adverse action notices required under federal law if the denial was
based on 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 2021SB-00716-R01-BA.DOCX
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application.
COSIGNER RELEASE APP LICATIONS
Servicer Response
The bill prohibits, when responding to a cosigner release
application, private student loan servicers from doing the following:
1. imposing restrictions on a borrower or cosigner that may
permanently prevent him or her 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 making a final
decision for cosigner release. “Negative consequences” include
additional eligibility criteria, negative credit reporting, loss of
eligibility for cosigner release, late fees, interest capitalization, or 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 request by a borrower
or cosigner for a change that results in a restart of the count of
consecutive on-time payments required for cosigner release eligibility,
to provide the borrower and cosigner (1) written notice of the impact
of the change on cosigner eligibility and (2) a chance to withdraw or
reverse the change.
Cosigner Appeal of Release Denial 2021SB-00716-R01-BA.DOCX
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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
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, and include in the system the (1) number of
applications received, (2) application approval and denial rate, and (3)
primary reasons for denial.
RELEASE OF DISABLED COSIGNER
The bill requires a private student loan servicer, if a cosigner has a
total and permanent disability and unless otherwise expressly
prohibited under the loan agreement terms, to (1) release the cosigner
from his or her loan repayment obligation upon receiving notice 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 any 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 cosigners
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.
RELATED BILL
SB 890 (File 112, as amended by Senate “A” and “B”), contains an
identical provision exempting banks and credit unions and certain
subsidiaries from being subject to the state’s student loan servicer
requirements (§ 4). 2021SB-00716-R01-BA.DOCX
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COMMITTEE ACTION
Higher Education and Employment Advancement Committee
Joint Favorable
Yea 22 Nay 0 (03/18/2021)