The Illinois House of Representatives and Senate have voted to override the veto by the state’s Republican governor of Senate Bill 1351, known as the Illinois Student Loan Servicing Rights Act. The override means that the new law will become effective on December 31, 2018. The bill was drafted by the office of Lisa Madigan, the Democratic Illinois Attorney General, and had strong Democratic support in the state’s House and Senate.
The Act includes the following key provisions:
- Licensing. The Act makes it unlawful “for any person to operate as a student loan servicer in Illinois except as authorized by this Act and without first having obtained a license in accordance with this Act.” For purposes of the Act, a “student loan” includes federal and private student loans, including loans to refinance a student loan. The Act contains exclusions for various types of entities, such as federal- or state-chartered banks, and for open-end credit and loans secured by real property or a dwelling. Credit extended by a postsecondary school is also excluded if the credit term is no longer than the borrower’s school program, the remaining principal balance at the time of the borrower’s graduation or completion of the program is less than $1,500 ,or the borrower failed to graduate or successfully complete the program and had a balance due at the time of disenrollment. The Act authorizes the Secretary of Financial and Professional Regulation, or his or her designee, to license and supervise servicers and issue implementing regulations.
- Servicing Practices. Article 5 of the Act, titled “Student Loan Bill of Rights,” prohibits certain servicing practices and imposes various requirements. The Act authorizes the Attorney General to enforce a violation of Article 5 as an unlawful practice under the Consumer Fraud and Deceptive Business Practices Act. Article 5 prohibits a servicer from engaging in any unfair or deceptive practice toward any borrower or cosigner or misrepresenting or omitting any material information in connection with servicing a loan. A servicer is also prohibited from misapplying payments to the loan balance and is required to oversee third parties to ensure their compliance with Article 5 when working on the servicer’s behalf. In addition, Article 5 contains provisions addressing the following specific areas:
- Payment processing. Provisions include a requirement for prompt and accurate crediting of payments, a prohibition on charging a penalty if within 90 days of a change in address, a payment is received at a previous address, and a requirement to allow borrowers or cosigners to provide instructions for applying payments.
- Fees. Unless otherwise provided by federal law, a servicer can only charge late fees that are reasonable and proportional to the cost it incurred related to the late payment and cannot charge a borrower or cosigner for modifying, deferring, forbearing, renewing, extending, or amending a loan.
- Billing statements. A servicer is prohibited from misrepresenting various items of information in billing statements or information “regarding the $0 bill and advancement of the due date on any billing statement that reflects $0 owed.”
- Payment histories. A servicer must provide a written payment history to a borrower or cosigner at no cost within 21 days of receiving a request.
- Specialized assistance. A servicer must “specially designate servicing and collections personnel deemed repayment specialists who have received enhanced training related to repayment options.” The Act contains a definition of “federal loan borrower eligible for referral to a repayment specialist” that covers a borrower who has certain specified characteristics such as a borrower who requests information about options to reduce or suspend payments, has missed 2 consecutive payments, or is at least 75 days delinquent. Servicers must provide specified information to such borrowers and make certain assessments regarding available payment options and are prohibited from implementing any compensation plan that incentivizes a repayment specialist to violate the Act.
- Disclosures related to discharge and cancellation. Servicers must make disclosures information related to the Department of Education’s procedures for asserting a defense to repayment or claiming a discharge to borrowers eligible to assert such a defense or claim a discharge.
- Income-driven repayment plan certifications. A servicer must disclose the date a borrower’s income-driven payment plan certification expires and the consequences, including the new repayment amount, of failing to recertify.
- Information provided to private student loan borrowers. A servicer’s website must provide a description of any alternative repayment plan offered by the servicer for private student loans. The servicer must establish policies and procedures for evaluating private student loan alternative repayment arrangement requests and such arrangements must consider certain specified information.
- Cosigner release. A servicer’s website must provide information on the availability and criteria for the release of cosigners on private student loans.
- Payoff statements. A servicer’s website must indicate that a borrower can request a payoff statement. The servicer must provide a statement within 10 days, including information needed for the requester to pay off the loan, and must send a paid-in-full notice within 30 days of a payoff.
- Transfer of servicing. The Act requires specified information to be provided by a transferor and transferee servicer within a specified time period, prohibits the charging of late fees and interest and furnishing of negative credit information in connection with certain payments made after a transfer of servicing, requires prompt transfer of payments received by a transferor servicer, and requires a transferee servicer to establish a process for a borrower to authorize recurring electronic fund transfers (unless the borrower’s authorization was automatically transferred to the transferee servicer.)
- Requests for assistance and account dispute resolution. A servicer must implement policies and procedures for dealing effectively and timely with requests for assistance that meet certain specified requirements, including providing information about submitting such requests on its website, responding to such requests within specified time frames, and implementing a process for a requester to escalate such a request. When a request for assistance contains an account dispute, a servicer must comply with specified dispute resolution procedures that must include a process for a requester to appeal a servicer’s determination. The Act contains requirements that the appeal process must satisfy.
- Ombudsman. The Act creates the position of Student Loan Ombudsman within the Attorney General’s office “to provide timely assistance to student loan borrowers.” The Ombudsman’s responsibilities include attempting to resolve complaints from student loan borrowers and compiling and analyzing complaint data.