Washington has become the latest state to impose a licensing requirement on student loan servicers. Yesterday, Governor Jay Inslee signed SB 6029, which establishes a “student loan bill of rights,” similar to the bills that have been enacted in California, Connecticut, the District of Columbia, and Illinois.
The law has an effective date of 6/7/2018, and its requirements include the following:
- Creation of Advocate Role: The law creates the position of “Advocate” within the Washington Student Achievement Council to assist student education loan borrowers with student loans. This role is analogous to that of “ombudsman” under proposed and enacted servicing bills in other states. One of the Advocate’s roles is to receive and review borrower complaints, and refer servicing-related complaints to either the state’s Department of Financial Institutions (“DFI”) or the Attorney General’s Office, depending on which office has jurisdiction. The Advocate is also tasked with:
- Compiling information on borrower complaints;
- Providing information to stakeholders;
- Analyzing laws, rules, and policies;
- Assessing annually the number of residents with federal student education loans who have applied for, received, or are waiting for loan forgiveness;
- Providing information on the Advocate’s availability to borrowers, institutions of higher education, and others;
- Assisting borrowers in applying for forgiveness or discharge of student education loans, including communicating with student education loan servicers to resolve complaints, or any other necessary actions; and
- Establishing a borrower education course by 10/1/20.
- Licensing of Servicers: SB 6029 requires servicers to obtain a license from the DFI. There are various exemptions from licensing for certain types of entities and programs (trade, technical, vocational, or apprentice programs; postsecondary schools that service their own student loans; persons servicing five or fewer student loans; and federal, state, and local government entities servicing loans that they originated), although such servicers would still need to comply with the statute’s substantive requirements even if they are not licensed.
- Servicer Responsibilities: All servicers, except those entirely exempt from the statute, are subject to various obligations. Among other things, servicers must:
- Provide, free of charge, information about repayment options and contact information for the Advocate ;
- Provide borrowers with information about fees assessed and amounts received and credited;
- Maintain written and electronic loan records;
- Respond to borrower requests for certain information within 15 days;
- Notify a borrower when acquiring or transferring servicing rights; and
- Provide borrowers with disclosures relating to the possible effects of refinancing student loans.
- Modification Servicer Responsibilities: The bill imposes a number of requirements on third-parties providing student education loan modification services, including mandates that such persons: not charge or receive money until their services have been performed; not charge fees that are in excess of what is customary; and immediately inform a borrower in writing if a modification, refinancing, consolidation, or other such change is not possible.
- Requirements for Educational Institutions: Institutions of higher education are required to send borrower notices regarding financial aid.
- Fees: The bill also calls for the establishment, by rule, of fees sufficient to cover the costs of administering the program created by the bill.
- Bank Exemption: The statute provides for a complete exemption for “any person doing business under, and as permitted by, any law of this state or of the United States relating to banks, savings banks, trust companies, savings and loan or building and loan associations, or credit unions.” Notably, this exemption does not expressly cover state banks chartered in other states.
As we recently noted, bills like SB 6029 are being introduced in legislatures across the country at an increasing rate, and we are continuing to track the progress of these proposals as they move through various statehouses.
Hopefully the torrent of such proposals will soon be reduced to a trickle, now that the U.S. Department of Education has formally weighed in on this trend, issuing an interpretation emphasizing that the Higher Education Act, federal regulations, and applicable federal contracts preempt laws like SB 6209 that purport to regulate federal student loan servicers.