BILL ANALYSIS Ó
SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Steven Glazer, Chair
2015 - 2016 Regular
Bill No: AB 2251 Hearing Date: June 29,
2016
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|Author: |Mark Stone |
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|Version: |June 13, 2016 Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Eileen Newhall |
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Subject: Student loan servicers: licensing and regulation:
Student Loan Borrower's Bill of Rights
SUMMARY Enacts the Student Loan Borrower's Bill of Rights, which
establishes a new licensing law applicable to student loan
servicers, administered by the Department of Business Oversight
(DBO), as specified.
DESCRIPTION
1. Contains findings and declarations regarding the magnitude
of outstanding student loan debt in the United States, the
challenges that this debt places on the state's economy, the
lack of consistent federal standards for student loan
servicing, and the results of a September 2015 report issued
by the Consumer Financial Protection Bureau (CFPB), which
documented several challenges faced by student loan
borrowers when attempting to gain answers to questions from
their servicers and gain assistance from their servicers in
correcting payment processing errors. States the intent of
the Legislature to promote meaningful access to federal
affordable repayment and loan forgiveness benefits, reliable
information about student educational loans and loan
repayment options, and quality customer service and fair
treatment.
2. Establishes a new division within the Financial Code, named
the California Student Loan Borrower's Bill of Rights,
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administered by DBO, which requires persons engaged in the
business of servicing student loans within this state, as
defined, to obtain licenses, as specified. Significant
provisions of this new licensing law are as follows:
a. "Servicing" means any of the following: (1)
receiving any scheduled periodic payments from a borrower
or any notification that a borrower made a scheduled
periodic payment and applying payments to the borrower's
account pursuant to the terms of the student loan or the
contract governing the servicing; (2) during a period
when no payment is required on a student loan,
maintaining account records for the student loan and
communicating with the borrower regarding the student
loan on behalf of the student loan's holder; or (3)
interactions with a borrower, including, but not limited
to activities to help prevent default on obligations
arising from a student loan or conducted to facilitate
the activities described in (1) or (2).
b. "Student loan" means any loan primarily to finance a
postsecondary education and costs of attendance at the
postsecondary institution, including, but not limited to,
tuition, fees, books and supplies, room and board,
transportation, and miscellaneous personal expenses.
c. "Engage in the business" means servicing student
loans or disseminating information to the public relating
to the servicing of student loans.
d. The following entities are exempted from the
requirement to be licensed as student loan servicers:
state- or federally-chartered depository institutions,
insurance companies, nonprofit postsecondary educational
institutions servicing student loans they extend to
borrowers, and persons who are licensed in good standing
pursuant to the California Finance Lenders Law (CFLL).
e. The Commissioner of Business Oversight
(commissioner) is given authority to promulgate
regulations and issue orders to further the purposes of
the division; conduct investigations and examinations of
applicants and licensees, as specified; grant or deny
licenses based on specified criteria; impose and collect
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license fees and fees related to regulatory examinations,
as specified; and pursue enforcement actions against
licensees and unlicensed persons who are acting in a
manner that requires licensure, as specified.
f. Licensees are required to submit to background
information checks as a condition of licensure; maintain
a minimum $25,000 surety bond on file with the
commissioner; maintain a minimum net worth of $250,000 at
all times; obtain approval from the commissioner prior to
opening any new branch office; file any report required
by regulation or order of the commissioner, including an
annual report; submit to periodic examination by the
commissioner; and do all of the following:
i. Maintain staff adequate to meet the
requirements of the division and every regulation and
order of the commissioner.
ii. Advise the commissioner of filing a
petition for bankruptcy within five days of the
filing.
iii. Comply with all applicable state and
federal laws and tax return filing requirements.
iv. Provide information on a publicly
accessible Internet Web site concerning affordable
repayment and loan forgiveness options that may be
available to borrowers and provide to borrowers, at
least once per calendar year, written correspondence
or an email describing those options, as applicable.
v. Appoint a single point of contact for a
borrower.
vi. Respond to a qualified written request, as
defined, by acknowledging receipt of the request
within five business days, and within 30 business
days, to the extent possible, provide information
relating to the request and the applicable action the
licensee will take to correct the account or an
explanation for the licensee's position that the
account is correct.
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vii. Refrain from submitting adverse information
regarding any payment that is the subject of a
qualified written request to any consumer reporting
agency during the 60 business-day period starting on
the date the servicer receives a qualified written
request related to a dispute on a borrower's
payments.
viii. Inquire of a borrower how to apply an
overpayment by that borrower on his or her student
loan, as specified.
ix. Notify the commissioner before selling,
assigning, or transferring the servicing of a student
loan that results in a change in the identity of the
party to whom the borrower is required to send
payments or direct any communications concerning the
student loan.
x. If the sale, assignment, or other transfer
of the servicing of a student loan results in a
change in the identity of the party to whom the
borrower is required to send payments or direct any
communications concerning the student loan, notify
that borrower in writing at least 15 days before he
or she is required to send a payment to the new
servicer. This notification is required to contain
specified information identifying and providing
contact information for the new servicer, and
specifying the date on which the new servicer will
begin accepting payments. The servicer is also
required to transfer all information regarding a
borrower, a borrower's account, and a borrower's
student loan to the new licensee within 45 calendar
days of a sale, assignment, or transfer.
xi. Retain and maintain its records of
servicing a borrower's student loan for a minimum of
three years after the student loan has been
transferred, assigned, or paid in full.
g. Licensees are prohibited from doing any of the
following:
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i. Directly or indirectly employing any
scheme, device, or artifice to defraud or mislead a
borrower.
ii. Engaging in any unfair or deceptive practice
toward any borrower or misrepresenting or omitting
any material information in connection with the
servicing of a student 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 loan, the terms and conditions of the
student loan agreement, or the borrower's obligations
under the student loan.
iii. Obtaining property of a borrower by fraud or
misrepresentation.
iv. Misapplying payments made by a borrower to the
outstanding balance of a student loan.
v. Providing inaccurate information to a
credit bureau regarding a borrower.
vi. Failing to report both the favorable and
unfavorable payment history of a borrower to a
nationally recognized consumer credit bureau at least
annually, if the licensee regularly reports
information to a credit bureau.
vii. Refusing to communicate with an authorized
representative of the borrower who provides a written
authorization signed by the borrower, as specified.
viii. Negligently or intentionally making any false
statement or knowingly and willfully making any
omission of a material fact in connection with any
information or reports filed with the commissioner,
DBO, or another governmental agency.
h. The commissioner is granted several enforcement
tools, including desist and refrain orders; civil
penalties of up to $2,500 per violation; administrative
penalties of up to $100 per day for failure to submit
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reports; license suspension and revocation; and the
ability to petition a court for ancillary relief on
behalf of persons injured by the act or practice of a
licensee. Licensees are entitled to challenge
enforcement actions brought by the commissioner pursuant
to procedures specified in the Administrative Procedures
Act (Chapter 5 of Part 1 of Division 3 of Title 2 of the
Government Code).
EXISTING LAW grants DBO the authority to administer the CFLL
(Financial Code Section 22000 et seq.) and the California
Residential Mortgage Lending Act (CRMLA; Financial Code Section
50000 et seq.), both of which authorize the servicing of loans
taken out for personal, family, or household purposes, but
neither of which is specific to loans taken out to finance
postsecondary educational expenses.
COMMENTS
1. Purpose: This bill is sponsored by Attorney General Kamala
Harris to provide increased accountability among student
loan servicers and to improve the quality of communications
between student loan borrowers and their student loan
servicers. According to this bill's author, the licensure
program proposed in this bill will be able to protect
consumers from errors by student loan servicers and allow
servicers to document their adherence to California's rules.
2. Background: Student loan debt is second in size only to
mortgage debt, among all types of debt held by U.S.
consumers. According to CFPB, more than 41 million
Americans collectively owed more than $1.2 trillion in
outstanding federal student loan debt as of September, 2015.
In less than a decade, the volume of outstanding federal
student loan debt has more than doubled, rising from $516
billion in 2007 to over $1.2 trillion in the third quarter
of 2015. During the same time period, the average student
loan debt burden of individual borrowers grew by nearly 60%,
rising from about $18,000 in 2007 to nearly $30,000 in the
third quarter of 2015.
Measure One, a consortium of the nation's six largest private
student loan lenders, estimated that total outstanding
private student loan debt totaled approximately $100 billion
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in the third quarter of 2015
(http://www.measureone.com/reports). Approximately 92% of
outstanding student loan debt is federal, while 8% is
private.
3. Types of federal student loans : According to the U.S.
Department of Education (USDOE), there are four main types
of postsecondary education loans under which borrowers have
outstanding balances. Direct Loans are federal loans made
directly to borrowers by USDOE through the William D. Ford
Federal Direct Loan program. Federal Family Education Loan
Program (FFELP) loans were originated by private lenders and
guaranteed by the federal government. New FFELP loan
originations ended in 2010, pursuant to the SAFRA Act, but a
significant number of FFELP loans remain outstanding.
Federal Perkins Loans, which are co-funded by institutions
of higher education and the federal government, are
originated and administered by participating educational
institutions. Private student loans are made by depository
and non-depository financial institutions, states,
institutions of higher education, and other entities.
4. Who services student loans? Ten entities are currently
authorized to service federal student loans, including
CornerStone, FedLoan Servicing (PHEAA), Granite State-GSMR,
Great Lakes Educational Loan Services, Inc.,
HESC/Edfinancial, MOHELA, Navient, Nelnet, OSLA Servicing,
and VSAC Federal Loans
( https://studentaid.ed.gov/sa/repay-loans/understand/servicer
s ). A variety of institutions service private student
loans, including Citizens Bank, Discover, Navient, PNC Bank,
SallieMae, Wells Fargo Bank, AES, ACS, Aspire, Nelnet, and
several private educational institutions, among others. A
different group of companies, including SoFi, Earnest,
CommonBond, CollegeAve, LendKey, U-Fi, and others offer
student loan borrowers the opportunity to refinance their
outstanding student loans, which can involve additional
servicers beyond those listed above.
As amended on June 13th, this bill applies its provisions to
entities which service federal or private student loans, or
both. Although exemptions from the bill are provided for
depository institutions, insurance companies, nonprofit
private postsecondary educational institutions, and entities
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already licensed in good standing under the CFLL, the
majority of the entities listed immediately above will be
subject to this bill's provisions.
5. What Rules Currently Apply to Student Loan Servicers?
Direct Loans, Perkins Loans, and FFELP loans are governed by
Title IV of the Higher Education Act of 1965. Federal
regulations applicable to the William D. Ford Federal Direct
Loan Program are found in 34 CFR Part 685; those applicable
to FFELP loans are found in 34 CFR Part 682; and those
applicable to Perkins Loans are found in 34 CFR Part 674.
Student loan servicers are also required to comply with the
federal Fair Debt Collection Practices Act (15 USC Section
1692 et seq.) and the Rosenthal Fair Debt Collection
Practices Act (Civil Code Section 1788 et seq.).
This bill applies a layer of state rules on top of existing
federal student loan servicing regulations and state and
federal debt collection practices laws, and establishes a
regulatory framework under which a California regulator
(DBO) can sanction student loan servicers who fail to comply
with the new rules this bill establishes.
6. Concerns about student loan servicing: In October, 2014,
the CFPB's Student Loan Ombudsman issued a report analyzing
over 5,300 private student loan complaints received during
the 2013-14 federal fiscal year. On the basis of those
complaints, the CFPB concluded that many consumers would
repay their private student loans, if they could qualify for
a repayment plan that reflected their current financial
circumstances. Instead, many borrowers reported being
driven to default by their lenders, because no viable
repayment options were available to them.
Among the complaints received by CFPB about private student
loans: 1) Information about the availability of and
eligibility for loan modifications is not readily available;
borrowers also reported receiving conflicting or inaccurate
information from different customer service representatives
at the same lender or servicer. 2) Unlike federal student
loan borrowers, who are entitled, by law, to a range of
affordable loan modification options, including income-based
repayment plans, extended loan terms, and plans that start
with a small payment and increase over time, private student
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loan borrowers are not entitled to any relief. Instead,
consumers complained that their private student loan lenders
and servicers tell them that they are not eligible for any
affordable repayment plans that would allow them to avoid
default. 3) Although some private student lenders offer
temporary forbearance in lieu of affordable repayment plans,
borrowers report that even these temporary forbearance
options carry burdensome enrollment fees and processing
delays.
In May, 2015, the CFPB joined with USDOE and the Department of
the Treasury to launch a public inquiry into federal and
private student loan servicing practices. That inquiry led
to publication of a September, 2015 report by the CFPB
titled, "Student Loan Servicing: Analysis of Public Input
and Recommendations For Reform"
( http://files.consumerfinance.gov/f/201509_cfpb_student-loan-
servicing-report.pdf ). Analyzing over 30,000 comments,
including over 8,000 comments from individual borrowers with
outstanding student loans, that report identified a myriad
of frustrations and challenges faced by student loan
borrowers. Concerns related to five specific areas,
including borrower benefits and consumer protections,
servicing transfers, customer service and error resolution,
payment processing, and practices that affect specific
borrower segments, such as military families and older
borrowers.
An incomplete list of the problems identified by the CFPB and
described in that report: Borrowers may not be informed
about the availability of certain alternative repayment
plans or may be encouraged by servicing personnel to enroll
in alternatives that may not be in their best interests.
Federal student loan borrowers may not be informed about
interest subsidies, loan forgiveness, or other benefits
associated with income-driven repayment plans. Private
student loan borrowers in financial distress may not be able
to access accurate information about options to avoid
default. Federal student loan borrowers may be enrolled in
repayment plans that do not reflect their choices due to
paperwork processing errors. Borrowers encounter delays and
processing errors when attempting to certify their incomes
while enrolling in income-driven repayment plans. Borrowers
requesting forbearance may experience processing delays and
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receive unclear information about eligibility requirements.
Servicers are slow to credit borrowers who have complied
with repayment incentives. Borrowers with federal student
loans may not be made aware of available options to cancel
or discharge their student debt. Borrowers with private
student loans may have no options available to discharge or
cancel their debt. Borrowers seeking loan forgiveness under
the federal Public Service Loan Forgiveness program can
encounter service breakdowns that limit benefits and prolong
repayment. Borrowers often do not receive notice that their
loans are being transferred to new servicers. Variations in
payment policies across servicers may adversely affect
borrowers following servicing transfers, especially when new
servicers elect not to continue certain payment arrangements
agreed to by previous servicers and fail to notify borrowers
of changes in repayment arrangements. Payments may be lost
or may be processed but not posted to borrower's accounts
following a servicing transfer, even when borrowers follow
servicers' instructions. Borrowers pursuing benefits that
require servicers to monitor payment histories report
breakdowns when attempting to reconcile conflicting
information following a transfer. Borrowers' access to
payment histories and information about the ways in which
payments have been allocated between interest and principal
can be limited. Borrowers may not be able to access
documentation about their loans, including their original
loan contracts. Servicing personnel may provide borrowers
with conflicting, inconsistent, or inaccurate information.
Servicing personnel may decline to provide requested
assistance or fail to deliver on assistance that has been
offered. Borrowers may encounter barriers when trying to
resolve account errors. Borrowers' payments may be posted
late, resulting in additional accrued interest and late
fees, and preventing borrowers from receiving credit for
timely payments through incentive programs. Servicers may
not process borrower payments in accordance with borrower
instructions; furthermore, in some instances, borrower
instructions may be honored, but only periodically and not
consistently. Billing statements may not provide accurate
or complete information regarding when payments are due,
when late fees are assessed, when payments do and do not
qualify for specific borrower benefits and protections, and
regarding borrowers' repayment options. Servicers may not
provide regular periodic billing statements or provide
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borrowers with billing statements too close to payment due
dates.
AB 2251 includes provisions intended to begin addressing the
findings of CFPB's inquiries into student loan servicing
practices.
7. Summary of Arguments in Support: Attorney General Kamala
Harris believes that many of the issues addressed by the
2012 Homeowner Bill of Rights are similar to those that have
surfaced in the student loan servicing industry. "AB 2251
will protect students and provide clarity in a confusing
space. By passing this legislation now, California may
successfully forestall a crisis like what homeowners
experienced at the height of the country's mortgage fraud
epidemic. This bill would ensure that bad actors who profit
through harmful or deceptive business practices are held
accountable, and that students can trust in the state's
regulated responsibilities for servicers. AB 2251 will
provide clear guidance to borrowers and empower students to
pursue their educations with confidence."
8. Summary of Arguments in Opposition: The California
Association of Private Postsecondary Schools (CAPS) is
opposed to this bill unless it is amended. CAPS raises
twelve concerns in its letter, several of which are
addressed below in the Amendments section of this analysis
(see amendments described in 9a, 9c, 9d, 9l, 9p, and 9t
below). Additional amendments desired by CAPS, which have
not yet been agreed to by the author, include the following:
a. Page 4, line 24: Use of the words "directly or
indirectly" is superfluous. Use of the word indirectly
will only lead to confusion and is redundant given the
language of line 23, which states that the bill applies
to a person engaged in the business of servicing a
student loan within this state.
b. Page 5, line 13: An exemption is provided for
nonprofit postsecondary educational institutions, but not
for for-profit postsecondary educational institutions.
For-profit postsecondary educational institutions also
provide first party financing to their students and
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should also be exempted from the provisions of this bill.
c. Page 7, line 24: The requirement to license
entities that maintain records for students should be
deleted. Read broadly under the definitions in the bill,
any employee of a school who somehow touches a student
loan file will have to be licensed, an outcome which will
be economically infeasible and will result in many
companies being unable to afford to service student loans
in California.
d. Page 11, line 28: The requirement that each license
application be accompanied by financial statements
prepared in accordance with generally accepted accounting
principles (GAAP) and indicate a net worth of at least
$250,000 should be deleted. Small and medium-sized
companies often do not follow GAAP, nor are they required
to do so. This bill's requirement that they do so places
an extra financial burden on these companies. The
$250,000 net worth requirement is also an unfair barrier
to entry for small entities and an unreasonable demand on
the industry. No new startup could enter the market
given the high net worth requirement.
e. Finally, many of the abuses this bill seeks to
prevent are "already addressed in the federal fair Debt
Collections Act and the California version of same. This
bill needs to be placed side by side with these two
statutes and one will see that there is great duplication
and overreaching occurring under this bill. We strongly
urge that this review take place to prevent chaos in the
student loan industry."
9. Amendments: This bill is a work in progress. Although the
author will be offering all of the amendments listed below,
additional amendments will likely be necessary to address
remaining outstanding issues (see Number 10 below).
Furthermore, DBO, which has not yet taken an official
position on the measure, is expected to recommend additional
amendments, which may significantly alter the measure, once
the Department is given authorization to provide formal
input. Given the lack of a deadline forcing the Legislature
to act on this issue this year, it may be prudent to hold
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this bill in Committee to allow its provisions to be more
fully vetted and refined over the interim. However, if this
Committee chooses to move the bill forward this year, it
should expect to see several additional changes to the
measure, before it is considered on the Senate Floor.
a. Page 4, lines 9 and 10, strike "California Student
Loan Borrower's Bill of Rights" and insert: Student Loan
Servicing Act.
Page 4, lines 16 and 17, strike ""California Student Loan
Borrower's Bill of Rights"" and insert: Student Loan
Servicing Act.
b. Delay the operative date of this bill to July 1,
2017.
c. Page 4, line 32, strike "insurance company,"
d. Page 6, line 8, strike "the dissemination to the"
and strike lines 9 through 13.
e. Page 6, strike lines 20 through 23 and insert: this
state.
f. Page 6, lines 30 and 31, strike references to "a
joint venture," and "a joint stock company,"
g. Page 7, strike lines 3 through 11 and insert:
Includes a statement of the reasons for the belief by the
borrower, to the extent applicable, that the account is
in error or that provides sufficient detail to the
servicer regarding information sought by the borrower,
such as a complete payment history for the loan or the
borrower's account, a copy of the borrower's student loan
promissory note, or the contact information for the
creditor to whom the borrower's student loan is owed."
h. Page 7, line 26, strike "student loan's holder" and
insert: owner of the student loan promissory note
i. Strike page 7, lines 27 through 30 and insert:
Interacting with a borrower related to that borrower's
student loan, with the goal of helping the borrower avoid
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default on his or her student loan or facilitating the
activities described in paragraph (1) or (2).
j. Page 7, line 34, strike "the" and insert: a
aa. Page 8, line 10, after "division" insert a comma
and the following: and may promulgate regulations and
issue orders consistent with that authority.
Page 8, strike lines 11 and 12.
bb. Page 16, strike lines 5 and 6 and insert:
Develop policies and procedures reasonably intended to
promote compliance with this division.
Page 16, strike lines 16 and 17.
Page 16, strike lines 20 through 24 and insert the
following: Provide, free of charge on its Internet Web
site, information or links to information regarding
repayment and loan forgiveness options that may be
available to its borrowers, and provide this information
to its borrowers, via written correspondence or email, at
least once per calendar year.
Page 16, strike lines 25 and 26.
cc. Page 17, line 12, strike "(j)" and insert: (h)
Page 17, line 15, after "and," insert: if applicable,
Page 17, line 15, after "the" strike applicable
dd. Page 18, between lines 10 and 11, insert the
following:
28135. (a) A licensee shall not be required to comply with
the requirements of subdivision (h) of Section 28134 if
the licensee reasonably determines that any of the
following apply:
(1) A qualified written request is substantially the
same as a qualified written request previously made by
the borrower, for which the licensee has previously
complied with its obligation to respond pursuant to
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subdivision (h) of Section 18134, unless the borrower
provides new and material information to support the more
recent qualified written request. New and material
information means information that was not reviewed by
the licensee in connection with a prior qualified written
request submitted by the same borrower and that is
reasonably likely to change the licensee's prior response
related to that request.
(2) A qualified written request is overbroad. A
qualified written request is overbroad if the licensee
cannot reasonably determine from the request the specific
error that the borrower asserts has occurred on his or
her account or the specific information the borrower is
requesting related to his or her account. To the extent
a licensee can reasonably identify a valid assertion of
an error or valid request for information in a qualified
written request that is otherwise overbroad, the licensee
shall comply with the requirements of subdivision (h) of
Section 28134 with respect to that valid asserted error
or request for information.
(3) A qualified written request is delivered to the
licensee more than one year after the licensee sells,
assigns, or transfers the servicing of the student loan
that is the subject of the qualified written request to
another servicer.
(b) If, pursuant to subdivision (a) a licensee determines
that it is not required to comply with the requirements
of subdivision (h) of Section 28134, it shall notify the
borrower of its determination, and the basis for its
determination, in writing not later than five business
days after making such determination.
ee. Page 18, line 14, delete "to, then"
Page 18, line 16, strike the first "a" and insert: the
ff. Page 18, strike lines 36 through 39 and page 19,
strike lines 1 and 2.
gg. Page 19, strike line 14.
hh. Page 19, strike lines 17 through 22 and insert:
Fail to accurately report each borrower's payment
performance to at least one consumer reporting agency
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that compiles and maintains files on consumers on a
nationwide basis, upon acceptance as a data furnisher by
that consumer reporting agency. For purposes of this
section, a consumer reporting agency that compiles and
maintains files on consumers on a nationwide basis is one
that meets the definition in Section 603(p) of the
federal Fair Credit Reporting Act (15 USC Sec. 1681a(p)).
ii. Page 19, line 33, after the period, insert:
Notwithstanding subdivision (b) of Section 28136,
Page 19, line 35, after "been" insert: sold,
jj. Page 20, strike lines 22 through 40 and page 21,
strike lines 1 through 27.
aaa. Page 22, line 26, after "year," insert:
including information regarding the number of loans that
are sold, assigned, or transferred to another party.
bbb. Page 22, between lines 36 and 37, insert:
28151. (a) At the end of the licensee's fiscal year, but in
no case more than 12 months after the last audit
conducted pursuant to this section, each licensee shall
cause its books and accounts to be audited by an
independent certified public accountant. The audit shall
be sufficiently comprehensive in scope to permit the
expression of an opinion on the financial statements
prepared in accordance with generally accepted accounting
principles and shall be performed in accordance with
generally accepted auditing standards. The audit shall
include a reconciliation of the licensee's trust accounts
as of the audit date.
(b) "Expression of an opinion" includes (1) an unqualified
opinion, (2) a qualified opinion, (3) a disclaimer of
opinion, or (4) an adverse opinion. If a financial
statement, report, certificate, or opinion of the
independent certified public accountant is in any way
qualified, the commissioner may require the licensee to
take any action that the commissioner deems appropriate
to address the qualification. The commissioner may
reject any financial statement, report, certificate, or
opinion by notifying the licensee or other person
AB 2251 (Mark Stone) Page 17
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required to make the filing of the rejection and the
reason therefor. Within 30 days after the receipt of the
notice, the licensee or other person shall correct the
deficiencies. Failure to correct the deficiencies is a
violation of this division. The commissioner shall
retain a copy of all financial statements, reports,
certificates, or opinions so rejected.
(c) If a qualified or adverse opinion is expressed or if an
opinion is disclaimed, the reasons therefor shall be
fully explained.
(d) The audit report shall be filed with the commissioner
within 105 days of the end of the licensee's fiscal year.
The report filed with the commissioner shall be
certified by the certified public accountant conducting
the audit. The commissioner may promulgate rules
regarding late audit reports.
(e) If a licensee required to make an audit fails to cause
an audit to be made, the commissioner may cause the audit
to be made by an independent certified public accountant
at the licensee's expense. The commissioner shall select
the independent certified public accountant by
advertising for bids or by other fair and impartial means
that the commissioner establishes by rule. The
commissioner may summarily revoke the license of a
licensee who fails to file a certified financial
statement prepared by an independent certified public
accountant as required by this division or at the request
of the commissioner.
ccc. Page 23, strike lines 12 through 38.
On page 24, between lines 13 and 14, insert:
(b) Unless otherwise exempt pursuant to Section 28106,
affiliates of a licensee are subject to examination by
the commissioner on the same terms as the licensee, but
only when reports from, or examination of, a licensee
provides documented evidence of unlawful activity between
a licensee and affiliate benefitting, affecting, or
arising from the activities regulated by this division.
(c) The cost of each examination of a licensee shall be
paid to the commissioner by the licensee examined, and
the commissioner may maintain an action for the recovery
of the cost in any court of competent jurisdiction. In
AB 2251 (Mark Stone) Page 18
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determining the cost of the examination, the commissioner
may use the estimated average hourly cost for all persons
performing examinations of licensees or other persons
subject to this division for the fiscal year.
(d) The statement of the findings of an examination shall
belong to the commissioner and shall not be disclosed to
anyone other than the licensee, law enforcement
officials, or other state or federal regulatory agencies
for further investigation and enforcement. Reports
required of licensees by the commissioner under this
division and results of examinations performed by the
commissioner under this division are the property of the
commissioner.
Page 24, strike lines 18 through 20 and insert:
(f) Notwithstanding any provision of this division, the
commissioner shall have the authority to waive one or
more branch office examinations, if the commissioner
deems that the branch office examinations are not
necessary for the protection of the public, due to the
centralized operations of the licensee or other factors
acceptable to the commissioner.
ddd. Page 28, between lines 30 and 31, insert:
28171. (a) If, upon inspection, examination, or
investigation, the commissioner has cause to believe that
a licensee or a person is violating or has violated any
provision of this division or any rule or order
thereunder, the commissioner or his or her designee may
issue a citation to that licensee or person in writing,
describing with particularity the basis of the citation.
Each citation may contain an order to correct the
violation or violations identified and provide a
reasonable time period or periods by which the violation
or violations must be corrected. In addition, each
citation may assess an administrative fine not to exceed
two thousand five hundred dollars ($2,500) that shall be
deposited in the State Corporations Fund. In assessing a
fine, the commissioner shall give due consideration to
the appropriateness of the amount of the fine with
respect to factors including the gravity of the
violation, the good faith of the person or licensees
AB 2251 (Mark Stone) Page 19
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cited, and the history of previous violations. A
citation issued and a fine assessed pursuant to this
section, while constituting punishment for a violation of
law, shall be in lieu of other administrative discipline
by the commissioner for the offense or offenses cited,
and the citation and fine payment thereof by a licensee
shall not be reported as disciplinary action taken by the
commissioner.
(b) Notwithstanding subdivision (a), nothing in this
section shall prevent the commissioner from issuing an
order to desist and refrain from engaging in a specific
business or activity or activities, or an order to
suspend all business operations to a person or licensee
who is engaged in or who has engaged in continued or
repeated violations of this division. In any of these
circumstances, the sanctions authorized under this
section shall be separate from, and in addition to, all
other administrative, civil, or criminal remedies.
(c) If, within 30 days from the receipt of the citation,
the person cited fails to notify the department that the
person intends to request a hearing pursuant to Section
28176, the citation shall be deemed final.
(d) After the exhaustion of the review procedures provided
for in this section, the commissioner may apply to the
appropriate superior court for a judgment in the amount
of the administrative fine and an order compelling the
cited person to comply with the order of the
commissioner. The application, which shall include a
certified copy of the final order of the commissioner,
shall constitute a sufficient showing to warrant the
issuance of the judgment and order.
10. Remaining Outstanding Issues:
a. Once amended as described in Number 9 above, this
bill will impose several costly requirements on
licensees, including a $250,000 net worth requirement,
$25,000 surety bond requirement, and a requirement to
submit audited financial statements prepared by an
independent certified public accountant in accordance
with GAAP to the commissioner on an annual basis. These
requirements may be appropriate for large servicers, but
will likely create a significant barrier to licensure for
small servicers and may impose a significant financial
AB 2251 (Mark Stone) Page 20
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burden on certain medium-sized servicers. Several small
and medium-sized student loan servicers that are required
to obtain licenses pursuant to the provisions of this
bill may be unable to afford to do so. Other small and
medium-sized student loan servicers may obtain licenses,
but be forced out of business by the financial pressures
imposed by ongoing licensure requirements. It is unclear
what will happen to the students whose loans are serviced
by those entities. It is also unclear whether this bill
will result in a reduction of student loan financing
among students who rely on entities that will no longer
be able to do business in California if this bill is
enacted.
This Committee may wish to ask this bill's author to commit
to working with student loan servicers to devise an
appropriate series of tiers, which reflect small, medium,
and large servicers, and to more carefully tailor the
financial requirements of this bill to address the
financial capacities of servicers within each of the
tiers.
b. Several of this bill's requirements appear to
overlap with federal student loan servicing requirements
and with the requirements of the federal Fair Debt
Collection Practices Act (15 USC Section 1692 et seq.)
and the Rosenthal Fair Debt Collection Practices Act
(Civil Code Section 1788 et seq.). Because of the
extensive nature of the most recent set of amendments to
this bill and the limited time available in which to
compare and contrast this bill with federal student loan
servicing requirements and state and federal debt
collection laws, the precise extent and nature of this
overlap is not yet known.
This Committee may wish to ask this bill's author to commit
to more fully exploring the extent and nature of this
overlap, and to modifying and/or eliminating provisions
of this bill that are duplicative, conflicting, or less
protective of consumers than federal servicing
requirements and state and federal debt collection
practices laws, before bringing this bill to a vote on
the Senate Floor.
AB 2251 (Mark Stone) Page 21
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LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Attorney General Kamala Harris (sponsor)
National Association of Social Workers, California Chapter
Opposition
California Association of Private Postsecondary Schools
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