Sue-Happy Bill Targeting Student Loan Servicers Introduced In Texas Senate

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Texas’s status as one of the nation’s most “business-friendly” states remains under threat as policymakers grapple with the fallout of a polarizing presidency and shifting demographics. There is no better example than the sweeping new bill, SB 1859, that Senator Beverly Powell (D-Burleson) introduced last week. Elected in 2018, Sen. Powell rode an anti-Trump wave to victory in the slightly Republican-leaning Texas Senate District 10, later joining the Education and Higher Education Committees. Though she may represent a fairly conservative base in Tarrant County, Sen. Powell is not shying away from pushing a deeply progressive agenda.

In addition to creating substantial new licensing and regulatory burdens, SB 1859 would mandate the designation of a student loan ombudsman to take on a range of new duties and, separately, require the Texas Banking Commissioner to investigate any complaint received about a student loan servicer. More troubling, the bill would grant the state’s 3 million+ student loan borrowers a powerful new right to sue.

As proposed, roadblocks to frivolous filings are virtually non-existent:

  • Do you believe, in hindsight, that your loan servicer “misled” you about whether deferment or forbearance is best under your individual circumstances, sue!
  • Do you believe your loan servicer omitted any “material information” (whatever that may be interpreted to mean by you or your lawyer) at any time when servicing your loan, sue!
  • Do you believe your loan servicer misapplied a payment, don’t call to work it out, sue!
  • Did your loan servicer suppress or delete negative information about your account so that you would not be hurt by your failure to pay, congratulations . . . but still sue!
  • Are your actual damages so small that it would never make sense to go to court, don’t worry, you can get treble damages, costs, and attorney’s fees, now sue!

Sure, if enacted, Texas lawyers like me could see a windfall from the proposed legislation. It will only take a small segment of Texas’s student loan borrowers (an unfortunate many of whom will be cash-strapped, desperate, and easily misled) to generate the proverbial “wave” of new cases. But, in my experience, I am not sure anyone else will win. Borrowers will invest time and resources in hopeless causes, often ending up worse off than when they started. Busy courts will see their dockets swell with cases that are difficult to cull before summary judgment under Texas procedures. Loan servicers will watch limited resources be re-directed to baseless disputes.

It is unclear whether SB 1859 has legs. Let’s hope not. Because the alternative could suggest Texas is no longer a welcome home to America’s top financial institutions.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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