A&B ABstract: Amid growing concerns of a student loan crisis, proposed Massachusetts H. 3977 is worth watching. If enacted, it would provide the Division of Banks and the Attorney General additional regulatory and enforcement authority over student loan servicers. It also would establish a new Consumer Assistance Unit to help consumers address complaints in any area enforced by the Division of Banks.

Discussion

As reported in Housing Wire, student loan debt has reached $1.5 trillion, enough to buy every home in the United States twice.  In response to the foreclosure crisis, Massachusetts enacted robust laws over mortgage servicers and continues to be active in enforcing those laws.  It should come as no surprise then that the Commonwealth is turning its attention to student loan servicers and proposing additional oversight by Office of Attorney General (“Office”) and the Division of Banks (“Division”). While Massachusetts legislators have proposed multiple measures to regulate student loan servicers, H. 3977 is the one to watch in 2019.

A New Licensing Obligation

Effective in January 2021 H. 3977 would  provide that “[n]o person shall directly or indirectly act as a student loan servicer” without obtaining a license from the Division unless exempt. A “student loan servicer” is defined broadly to include

companies that collect payments on a student loan, respond to customer service inquiries, and perform other administrative tasks associated with maintaining a student loan, disburse money from the student loan track student loans while borrowers are in school, process payments, respond to borrower inquiries and information requests, accept applications and process changes in repayment plans, deferments, forbearances, or other activities to prevent default, maintain student loan records, ensure the administration of loans in compliance with federal regulations and other legal requirements.

An exemption is available for banks, credit unions and their wholly owned subsidiaries as well as operating subsidiaries where each owner of the operating subsidiary is wholly owned by the same bank or credit union. It is unclear if the Commonwealth will require passive investors to become licensed.

Other Provisions of Note

While the measure doesn’t impose substantive practice requirements, it includes other provisions of note.

First, it imposes a minimum two-year record retention requirement and requires a servicer to produce records within five business days of a request from the Commissioner of Banks (“Commissioner”) or the Student Loan Ombudsman.

Second, it gives the Commissioner broad investigation and enforcement authority. Of note, the Commissioner may revoke or refuse to renew a student loan servicer licensed if he finds two or more violations during a one-year licensing period.  Further, a violation of federal law would constitute a violation of Massachusetts law. The Commissioner also may impose an administrative penalty of up to $50,000 per incident.;

Third, the measure prohibits a student loan servicer from engaging in unfair or deceptive acts. A violation of this law is also a violation of Chapter 93A, the Commonwealth’s UDAP law that allows for treble damages.

The Student Loan Ombudsman

Following the examples set by other states (including Maine, Maryland, New Jersey and New York) and the CFPB, the measure would establish as of September 1, 2020, a “student loan ombudsman” within the Office .  The Ombudsman’s responsibilities include helping borrowers explore repayment options, apply for federal programs, avoid or remove a default, resolve billing disputes or garnishments, obtain loan account details, stop harassing collection calls and apply for discharges.  The Ombudsman also would disseminate educational materials and share information with the Division.

The Consumer Assistance Unit

As of September 1, 2020, the measure would establish a new Consumer Assistance Unit housed within the Division.  The Unit would have broad authority to help consumers address complaints in (i) any area the Commissioner has authority to regulate involving state-chartered banks and credit unions, check cashers, foreign transmittal companies, sales finance companies, mortgage lenders, brokers, originators, and student loan servicers, or (ii) other areas as the Commissioner deems appropriate.

Takeaway

Student loan servicing is on the radar of Massachusetts regulators.  Companies should be mindful of H. 3977. Additionally, with the creation of the Consumer Assistance Unit and with H. 3977 granting broad investigation and enforcement authority to the Commissioner, we expect to see increased scrutiny and enforcement actions relative to student loan servicers.

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