Bill Text: CA AB2251 | 2015-2016 | Regular Session | Chaptered
Bill Title: Student loan servicers: licensing and regulation:
Spectrum: Partisan Bill (Democrat 4-0)
Status: (Passed) 2016-09-29 - Chaptered by Secretary of State - Chapter 824, Statutes of 2016. [AB2251 Detail]
Download: California-2015-AB2251-Chaptered.html
BILL NUMBER: AB 2251 CHAPTERED
BILL TEXT
CHAPTER 824
FILED WITH SECRETARY OF STATE SEPTEMBER 29, 2016
APPROVED BY GOVERNOR SEPTEMBER 29, 2016
PASSED THE SENATE AUGUST 29, 2016
PASSED THE ASSEMBLY AUGUST 31, 2016
AMENDED IN SENATE AUGUST 19, 2016
AMENDED IN SENATE AUGUST 1, 2016
AMENDED IN SENATE JUNE 13, 2016
AMENDED IN ASSEMBLY MAY 31, 2016
AMENDED IN ASSEMBLY MAY 10, 2016
AMENDED IN ASSEMBLY APRIL 20, 2016
AMENDED IN ASSEMBLY MARCH 28, 2016
INTRODUCED BY Assembly Member Mark Stone
(Coauthors: Assembly Members Dababneh and Gonzalez)
(Coauthor: Senator Leno)
FEBRUARY 18, 2016
An act to add Division 12.5 (commencing with Section 28100) to the
Financial Code, relating to student loan servicers.
LEGISLATIVE COUNSEL'S DIGEST
AB 2251, Mark Stone. Student loan servicers: licensing and
regulation: Student Loan Servicing Act.
(1) Existing law establishes the Department of Business Oversight
as headed by the Commissioner of Business Oversight, who, among other
things, generally provides for the licensure and regulation of
persons who are engaged in various consumer financial businesses,
including, but not limited to, the business of making consumer or
commercial loans.
This bill would enact the Student Loan Servicing Act providing for
the licensure, regulation, and oversight of student loan servicers
by the commissioner and would define terms for its purposes. The bill
would prohibit a person from engaging in the business of servicing a
student loan in this state, directly or indirectly, without a
license, unless exempt from the licensing requirement, and would
require a licensee to provide specific services to a student loan
borrower and comply with reporting, auditing, and other oversight by
the commissioner. The bill would require a person applying for a
license to, among other things, pay an application fee, sign the
application under penalty of perjury, and submit to a criminal
background check by the Department of Justice. By expanding the scope
of the crime of perjury and increasing who is authorized to receive
criminal record information, this bill would impose a state-mandated
local program. The bill would require each licensee to, among other
things, file reports with the commissioner under oath, pay to the
commissioner its pro rata share of all costs and expenses reasonably
incurred in the administration of these provisions, as estimated by
the commissioner, and would authorize the commissioner to enforce
these provisions by, among other things, promulgating regulations,
performing investigations, suspending a license, and enforcing the
provisions in an administrative hearing or in court, as specified.
The bill would prohibit the public disclosure of specific information
provided by a licensee to the commissioner. The bill would make the
act operative on July 1, 2018, except for specific authorizations to
the commissioner which may be exercised on and after January 1, 2017.
The bill would make legislative findings in support of its
provisions.
(2) The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
(3)Existing constitutional provisions require that a statute that
limits the right of access to the meetings of public bodies or the
writings of public officials and agencies be adopted with findings
demonstrating the interest protected by the limitation and the need
for protecting that interest.
This bill would make legislative findings to that effect.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) Student loan debt is a national crisis. More than 40,000,000
individuals in the United States owe some amount of student loan
debt. Total student loan debt in the United States currently exceeds
$1.2 trillion, surpassing both the amount of credit card debt and car
loans. With college costs continuing to rise, student loan debt
continues to rise, and there is no reduction in sight.
(b) While California's financial aid programs are some of the
strongest in the nation and our state's college graduates have among
the lowest student loan debt burdens, California students and
graduates still incur significant debt. According to the Institute
for College Access & Success, 55 percent of California's graduating
class of 2014 has student loan debt. According to the United States
Department of Education, as of January 2015, there are approximately
4,156,000 student loan borrowers in California, and the total student
loan debt outstanding for Californians is approximately $1.2
billion.
(c) Student loan debt is a hindrance on the state's economy,
preventing borrowers from achieving financial independence, buying
property, and starting businesses.
(d) Student loan servicers administer student loans, serving as a
critical link between borrowers and lenders in managing accounts,
processing payments, and communicating directly with borrowers.
Despite this critical relationship, according to the federal Consumer
Financial Protection Bureau (CFPB), there are no consistent,
marketwide federal standards for student loan servicing.
(e) The CFPB released a report in September 2015 that found that
student loan borrowers encounter servicers that discourage
borrower-friendly alternative payment plans, fail to respond to
questions and payment processing errors, and fail to provide
sufficient information to borrowers regarding payments, benefits,
interest rates, and other charges.
(f) It is the intent of the Legislature to promote all of the
following:
(1) Meaningful access to federal affordable repayment and loan
forgiveness benefits.
(2) Reliable information about student loans and loan repayment
options.
(3) Quality customer service and fair treatment.
SEC. 2. Division 12.5 (commencing with Section 28100) is added to
the Financial Code, to read:
DIVISION 12.5. Student Loan Servicing Act
CHAPTER 1. GENERAL PROVISIONS
Article 1. Short Title
28100. This division may be known and cited as the "Student Loan
Servicing Act."
Article 2. Requirement for License
28102. (a) No person shall engage in the business of servicing a
student loan in this state, directly or indirectly, without first
obtaining a license pursuant to this division. A license shall not be
transferable or assignable.
(b) This division shall not apply to any of the following:
(1) A bank, trust company, or industrial loan company doing
business under the authority of, or in accordance with, a license,
certificate, or charter issued by the United States or any state,
district, territory, or commonwealth of the United States that is
authorized to transact business in this state.
(2) A federally chartered savings and loan association, federal
savings bank, or federal credit union that is authorized to transact
business in this state.
(3) A savings and loan association, savings bank, or credit union
organized under the laws of this or any other state that is
authorized to transact business in this state.
(4) A public postsecondary educational institution or a private
nonprofit postsecondary educational institution servicing a student
loan it extended to the borrower.
(5) A nonprofit community service organization that meets all the
criteria of Section 12104.
(c) A private postsecondary educational institution not exempted
from the requirements of this division pursuant to subdivision (b)
shall not be required to comply with this division for the servicing
of a student loan it extended to a borrower that a licensee is
servicing pursuant to a servicing agreement with the private
postsecondary educational institution for that student loan.
Article 3. Definitions
28104. For the purposes of this division, the following terms
have the following meanings:
(a) "Applicant" means a person applying for a license pursuant to
this division.
(b) "Borrower" means either of the following:
(1) A person who has received or agreed to pay a student loan.
(2) A person who shares responsibility for repaying a student loan
with a person described in paragraph (1).
(c) "Commissioner" means the Commissioner of Business Oversight.
(d) "Department" means the Department of Business Oversight.
(e) "Engage in the business" means, without limitation, servicing
student loans.
(f) "In this state" means any activity of a person relating to
servicing student loans that originates from this state and is
directed to persons outside this state, or that originates from
outside this state and is directed to persons inside this state, or
that originates inside this state and is directed to persons inside
this state.
(g) "Licensee" means a person licensed pursuant to this division.
(h) "Person" means an individual, a corporation, a partnership, a
limited liability company, an association, a trust, an unincorporated
organization, a government, or a political subdivision of a
government, and any other entity.
(i) "Qualified written request" means a written correspondence
made by a borrower, other than notice on a payment medium supplied by
a licensee, that is transmitted by mail, facsimile, or
electronically through an email address or Internet Web site
designated by the licensee to receive communications from a borrower
that does all of the following:
(1) Enables the licensee to identify the name and account of the
borrower.
(2) 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.
(j) "Servicing" means any of the following activities related to a
student loan of a borrower:
(1) Performing both of the following:
(A) Receiving any scheduled periodic payments from a borrower or
any notification that a borrower made a scheduled periodic payment.
(B) 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,
performing both of the following:
(A) Maintaining account records for the student loan.
(B) Communicating with the borrower regarding the student loan on
behalf of the owner of the student loan promissory note.
(3) Interacting with a borrower related to that borrower's student
loan, with the goal of helping the borrower avoid default on his or
her student loan or facilitating the activities described in
paragraph (1) or (2).
(k) (1) "Student loan" means any loan primarily for use to finance
a postsecondary education and costs of attendance at a postsecondary
institution, including, but not limited to, tuition, fees, books and
supplies, room and board, transportation, and miscellaneous personal
expenses. A "student loan" includes a loan made to refinance a
student loan.
(2) (A) A "student loan" shall not include an extension of credit
under an open-end consumer credit plan, a reverse mortgage
transaction, a residential mortgage transaction, or any other loan
that is secured by real property or a dwelling.
(B) A "student loan" shall not include an extension of credit made
by a postsecondary educational institution to a borrower if one of
the following apply:
(i) The term of the extension of credit is no longer than the
borrower's education program.
(ii) The remaining, unpaid principal balance of the extension of
credit is less than $1,500 at the time of the borrower's graduation
or completion of the program.
(iii) The borrower fails to graduate or successfully complete his
or her education program and has a balance due at the time of his or
her disenrollment from the postsecondary institution.
(l) "Student loan servicer" means any person engaged in the
business of servicing student loans.
CHAPTER 2. LICENSING
Article 1. Commissioner of Business Oversight
28106. (a) The commissioner shall administer the provisions of
this division and may promulgate rules and regulations and issue
orders consistent with that authority.
(b) Without limitation, the functions, powers, and duties of the
commissioner include all of the following:
(1) To issue or refuse to issue a license as provided by this
division.
(2) To revoke or suspend for cause any license as provided by this
division.
(3) To keep records of licenses issued under this division.
(4) To receive, consider, investigate, and act upon complaints
made in connection with a licensee.
(5) To prescribe the forms of and receive (A) applications for
licenses and (B) reports, books, and records required to be made by a
licensee under this division, including annual audited financial
statements.
(6) To subpoena documents and witnesses and compel their
attendance and production, to administer oaths, and to require the
production of books, papers, or other materials relevant to any
inquiry authorized by this division.
(7) To require information with regard to an applicant that the
commissioner may deem necessary, with regard for the paramount public
interest in ascertaining the experience, background, honesty,
truthfulness, integrity, and competency of an applicant for servicing
student loans, and if an applicant is an entity other than an
individual, in ascertaining the honesty, truthfulness, integrity, and
competency of an officer or director of the corporation,
association, or other entity, or the members of a partnership.
(8) To enforce by order any provision of this division.
(9) To levy fees, fines, and charges in an amount sufficient to
cover the cost of the services performed in administering this
division.
(10) To appoint examiners, attorneys, supervisors, experts, and
special assistants as needed to effectively and efficiently
administer this division.
28108. (a) The commissioner shall have the authority to conduct
investigations and examinations of an applicant or licensee as
follows:
(1) For purposes of determining whether an applicant is eligible
for a license, or that a licensee is complying with the provisions of
this division or any regulation or order of the commissioner, the
commissioner may access, receive, and use any books, accounts,
records, files, documents, information, or evidence, including, but
not limited to, any of the following relating to the intent to, or
the practice of, servicing student loans for borrowers:
(A) Criminal, civil, and administrative history information.
(B) Personal history and experience information, including, but
not limited to, independent credit reports obtained from a consumer
reporting agency.
(C) Any other documents, information, or evidence that the
commissioner deems relevant to the inquiry or investigation
regardless of the location, possession, control, or custody of those
documents, information, or evidence.
(2) For the purposes of investigating violations or complaints
arising under this division, the commissioner may direct, subpoena,
or order the attendance of, and examine under oath, any person whose
testimony may be required about the student loan or account of the
borrower.
(b) In making any examination or investigation authorized by this
section, the commissioner may control access to any documents and
records of the licensee or person under examination or investigation.
The commissioner may take possession of the documents and records or
place a person in exclusive charge of the documents and records in
the place where they are usually kept. During the period of control,
no person shall remove or attempt to remove any of the documents and
records except pursuant to a court order or with the consent of the
commissioner. Unless the commissioner has reasonable grounds to
believe the documents or records of a licensee have been, or are at
risk of being, altered or destroyed for purposes of concealing a
violation of this division, the licensee or owner of the documents
and records shall have access to the documents or records as
necessary to conduct its ordinary business affairs.
28110. (a) Notwithstanding any other law, the commissioner may by
rule or order prescribe circumstances under which to accept
electronic records or electronic signatures. This section shall not
be deemed to require the commissioner to accept electronic records or
electronic signatures.
(b) For purposes of this section, the following terms have the
following meanings:
(1) "Electronic record" means an initial license application, or
material modification of that license application, and any other
record created, generated, sent, communicated, received, or stored by
electronic means. "Electronic records" also includes, but is not
limited to, all of the following:
(A) An application, amendment, supplement, and exhibit, filed for
any license, consent, or other authority.
(B) A financial statement, report, or advertising.
(C) An order, license, consent, or other authority.
(D) A notice of public hearing, accusation, and statement of
issues in connection with any application, license, consent, or other
authority.
(E) A proposed decision of a hearing officer and a decision of the
commissioner.
(F) The transcripts of a hearing and correspondence between a
party and the commissioner directly relating to the record.
(G) A release, newsletter, interpretive opinion, determination, or
specific ruling.
(H) Correspondence between a party and the commissioner directly
relating to any document listed in subparagraphs (A) to (G),
inclusive.
(2) "Electronic signature" means an electronic sound, symbol, or
process attached to or logically associated with an electronic record
and executed or adopted by a person with the intent to sign the
electronic record.
(c) The Legislature finds and declares that the Department of
Business Oversight has continuously implemented methods to accept
records filed electronically, and is encouraged to continue to expand
its use of electronic filings to the extent feasible, as budget,
resources, and equipment are made available to accomplish that goal.
Article 2. Application for License
28112. An applicant shall apply for a license by submitting all
of the following to the commissioner:
(a) A completed application for a license in a form prescribed by
the commissioner and signed under penalty of perjury.
(b) The sum of one hundred dollars ($100) as a fee for
investigating the application, plus the cost of fingerprint
processing and the criminal history record check under Section 28116,
and three hundred dollars ($300) as an application fee. The
investigation fee, including the amount for the criminal history
record check, and the application fee are not refundable if an
application is denied or withdrawn.
(c) Audited financial statements prepared in accordance with
generally accepted accounting principles and acceptable to the
commissioner that indicate a net worth of at least two hundred fifty
thousand dollars ($250,000).
28114. (a) The commissioner shall submit to the Department of
Justice fingerprint images and related information required by the
Department of Justice of every applicant for a license for purposes
of obtaining information as to the existence and content of a record
of state or federal convictions, state or federal arrests, and
information as to the existence and content of a record of state or
federal arrests for which the Department of Justice establishes that
the person is free on bail or on his or her own recognizance pending
trial or appeal.
(b) When received, the Department of Justice shall forward to the
Federal Bureau of Investigation requests for federal summary criminal
history information received pursuant to this section. The
Department of Justice shall review the information returned from the
Federal Bureau of Investigation and compile and disseminate a
response to the commissioner.
(c) The Department of Justice shall provide a response to the
commissioner pursuant to paragraph (1) of subdivision (p) of Section
11105 of the Penal Code.
(d) The commissioner shall request from the Department of Justice
subsequent arrest notification service, as provided pursuant to
Section 11105.2 of the Penal Code, for the license applicant
described in subdivision (a).
(e) The Department of Justice shall charge a fee, payable by the
applicant, sufficient to cover the costs of processing the requests
pursuant to this section.
28116. (a) Upon the filing of an application for a license
pursuant to Section 28112 and the payment of the fees, the
commissioner shall investigate the applicant and its general partners
and individuals owning or controlling, directly or indirectly, 10
percent or more of the outstanding interests or any person
responsible for the conduct of the applicant's servicing activities
in this state, if the applicant is a partnership. If the applicant is
a corporation, trust, limited liability company, or association,
including an unincorporated organization, the commissioner shall
investigate the applicant, its principal officers, directors,
managing members, and individuals owning or controlling, directly or
indirectly, 10 percent or more of the outstanding equity securities
or any person responsible for the conduct of the applicant's
servicing activities in this state.
(b) Upon the filing of an application for a license pursuant to
Section 28126 and the payment of the fees, the commissioner shall
investigate the person responsible for the servicing activity of the
licensee at the new location described in the application. The
investigation may be limited to information that was not included in
prior applications filed pursuant to this division. If the
commissioner determines that the applicant has satisfied this
division and does not find facts constituting reasons for denial, the
commissioner shall issue and deliver a license to the applicant.
(c) For the purposes of this section, "principal officers" shall
mean president, chief executive officer, treasurer, and chief
financial officer, as may be applicable, and any other officer with
direct responsibility for the conduct of the applicant's servicing
activities in this state.
28118. The commissioner shall, when the application is complete,
including having received the information from the Department of
Justice, either grant a license pursuant to this division or provide
a written explanation for the denial.
28120. (a) The proceedings for a denial of a license shall be
conducted in accordance with Chapter 5 (commencing with Section
11500) of Part 1 of Division 3 of Title 2 of the Government Code.
(b) The commissioner may deny an application for a license for any
of the following reasons:
(1) The applicant made a false statement of a material fact on the
application.
(2) The applicant or an individual specified in Section 28116
within the last 10 years of the date of application has committed any
act involving dishonesty, fraud, or deceit, or has been convicted
of, or pleaded nolo contendere to, a crime substantially related to
the qualifications, functions, or duties related to servicing.
(3) The applicant or an individual specified in Section 28116 has
violated any provision of this division.
28122. (a) The commissioner may deem an application for a license
abandoned if the applicant fails to respond to any request for
information required by the commissioner or department during an
investigation of the application.
(b) The commissioner shall notify the applicant, in writing, that
if the applicant fails to submit responsive information no later than
60 days after the date the commissioner sent the written request for
information, the commissioner shall deem the application abandoned.
(c) An application fee paid prior to the date an application is
deemed abandoned shall not be refunded. Abandonment of an application
pursuant to this subdivision shall not preclude the applicant from
submitting a new application and fee for a license.
28124. A license shall remain effective until the license is
either suspended or revoked by the commissioner or surrendered by the
licensee.
CHAPTER 3. LICENSEE DUTIES
28126. (a) A licensee shall notify the commissioner, in writing,
of any change in the information provided in the application for a
license, as applicable, not later than 10 business days after the
occurrence of the event that results in the information becoming
inaccurate or incomplete.
(b) (1) If a licensee seeks to change its place of business to a
street address other than that designated in its license, the
licensee shall provide notice to the commissioner at least 10 days
prior to the change. The commissioner shall notify the licensee
within 10 days if the commissioner disapproves the change, and if the
commissioner does not notify the licensee of disapproval within 10
days, the change in address shall be deemed approved.
(2) If notice is not given at least 10 days prior to the change of
a street address of a place of business, as required by subdivision
(b), or notice is not given at least 10 days prior to engaging in the
business of servicing student loans at a new location, the
commissioner may assess a civil or administrative penalty on the
licensee not to exceed five hundred dollars ($500).
28128. (a) A licensee seeking to engage in the business of
servicing student loans at a new location shall submit an application
for a branch office license to the commissioner at least 10 days
before engaging in the business of servicing student loans at a new
location and pay the fee required by Section 28112.
(b) The licensee may engage in the business of servicing student
loans at the new location 10 days after the date of submission of a
branch office application.
(c) (1) The commissioner shall approve or deny the person
responsible for engaging in the business of servicing at the new
location in accordance with Article 2 of Chapter 2 (commencing with
Section 28112), and shall notify the licensee of this decision within
90 days of the date of receipt of the application.
(2) If the commissioner denies the application, the licensee
shall, within 10 days of the date of receipt of notification of the
commissioner's denial, submit a new application to the commissioner
designating a different person responsible for engaging in the
business of servicing at the new location. The commissioner shall
approve or deny the different person as provided in paragraph (1).
(d) A licensee shall not engage in the business of servicing
student loans at a new location in a name other than a name approved
by the commissioner.
(e) A branch office license to engage in the business of servicing
at a new location shall be issued in accordance with this section. A
change of street address of a place of business designated in a
license shall be made in accordance with Section 28126 and shall not
constitute a new location subject to the requirements of this
section.
28130. A licensee shall do all of the following:
(a) Develop policies and procedures reasonably intended to promote
compliance with this division.
(b) File with the commissioner any report required by the
commissioner.
(c) Comply with the provisions of this division and any regulation
or order of the commissioner.
(d) Submit to periodic examination by the commissioner as required
by this division and any regulation or order of the commissioner.
(e) Advise the commissioner of filing a petition for bankruptcy
within five days of the filing.
(f) 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 borrowers and provide this
information or these links to borrowers via written correspondence or
email at least once per calendar year.
(g) (1) Respond to a qualified written request by acknowledging
receipt of the request within five business days and within 30
business days, provide information relating to the request and, if
applicable, the action the licensee will take to correct the account
or an explanation for the licensee's position that the borrower's
account is correct.
(2) The 30-day period described in paragraph (1) may be extended
for not more than 15 days if, before the end of the 30-day period,
the licensee notifies the borrower of the extension and the reasons
for the delay in responding.
(3) After receipt of a qualified written request related to a
dispute on a borrower's payment on a student loan, a licensee shall
not, for 60 days, furnish adverse information to any consumer
reporting agency regarding any payment that is the subject of the
qualified written request.
(h) (1) Except as provided in federal law or required by a student
loan agreement, a licensee shall inquire of a borrower how to apply
an overpayment to a student loan. A borrower's direction on how to
apply an overpayment to a student loan shall stay in effect for any
future overpayments during the term of a student loan until the
borrower provides different directions.
(2) For purposes of this subdivision, "overpayment" means a
payment on a student loan in excess of the monthly amount due from a
borrower on a student loan, also commonly referred to as a
prepayment.
28132. (a) A licensee shall not be required to comply with the
requirements of subdivision (g) of Section 28130, 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 subdivision (g) of Section 28130, 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 qualified written 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 (g) of Section 28130 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 (g)
of Section 28130, the licensee shall notify the borrower of the
determination, and the basis for its determination, in writing not
later than five business days after making such determination.
28134. (a) 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 the licensee shall
notify the borrower in writing at least 15 days before the borrower
is required to send a payment on the student loan of all of the
following:
(1) The identity of the new student loan servicer and the number
of the license of the new student loan servicer issued by the
commissioner.
(2) The name and address of the new student loan servicer to whom
subsequent payments or communications are required to be sent.
(3) The telephone numbers and Internet Web sites of the new
student loan servicer.
(4) The effective date of the sale, assignment, or transfer.
(5) The date on which the licensee, as the current student loan
servicer, will stop accepting payments on the borrower's student
loan.
(6) The date on which the new student loan servicer will begin
accepting payments on the borrower's student loan.
(b) A licensee shall transfer all information regarding a
borrower, a borrower's account, and a borrower's student loan to the
new licensee servicing the borrower's student loan within 45 calendar
days.
28136. The licensee shall not do any of the following:
(a) Directly or indirectly employ any scheme, device, or artifice
to defraud or mislead a borrower.
(b) Engage in any unfair or deceptive practice toward any borrower
or misrepresent or omit 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.
(c) Misapply payments made by a borrower to the outstanding
balance of a student loan.
(d) If the licensee is required to or voluntarily reports to a
consumer reporting agency, fail to accurately report each borrower's
payment performance to at least one consumer reporting agency 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 subdivision, 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 U.S.C. Sec. 1681a(p)).
(e) Refuse to communicate with an authorized representative of the
borrower who provides a written authorization signed by the
borrower, provided the licensee may adopt procedures reasonably
related to verifying that the representative is in fact authorized to
act on behalf of the borrower.
(f) Negligently or intentionally make any false statement or
knowingly and willfully make any omission of a material fact in
connection with any information or reports filed with the
commissioner, the department, or another governmental agency.
28138. Notwithstanding subdivision (b) of Section 28134 and
unless prohibited by federal law, a licensee shall retain and
maintain its records of servicing a borrower's student loan for a
minimum of three years after the student loan has been sold,
assigned, transferred, or paid in full.
28140. A licensee shall continuously maintain a minimum net worth
of at least two hundred fifty thousand dollars ($250,000).
28142. (a) A licensee shall maintain a surety bond in accordance
with this section in a minimum amount of twenty-five thousand dollars
($25,000). The bond shall be payable to the commissioner and issued
by an insurer authorized to do business in this state. An original
surety bond, including any and all riders and endorsements executed
subsequent to the effective date of the bond, shall be filed with the
commissioner within 10 days of execution. For licensees with
multiple licensed locations, only one surety bond is required. The
bond shall be used for the recovery of expenses, fines, and fees
levied by the commissioner in accordance with this division or for
losses or damages incurred by borrowers as the result of a licensee's
noncompliance with the requirements of this division.
(b) When an action is commenced on a licensee's bond, the
commissioner may require the filing of a new bond. Immediately upon
recovery of any action on the bond, the licensee shall file a new
bond. Failure to file a new bond within 10 days of the recovery on a
bond, or within 10 days after notification by the commissioner that a
new bond is required, constitutes sufficient grounds for the
suspension or revocation of the license.
(c) The commissioner may require a higher bond amount for a
licensee based on the dollar amount of servicing of student loans by
that licensee.
28144. (a) Each licensee shall pay to the commissioner its pro
rata share of all costs and expenses reasonably incurred in the
administration of this division, as estimated by the commissioner,
for the ensuing year and any deficit actually incurred or anticipated
in the administration of the division in the year in which the
assessment is made. The pro rata share shall be the proportion that a
licensee's servicing activities in this state bears to the costs and
expenses remaining after the amount assessed pursuant to subdivision
(c).
(b) On or before the 30th day of September in each year, the
commissioner shall notify each licensee of the amount assessed and
levied against it and that amount shall be paid by October 31. If
payment is not made by October 31, the commissioner shall assess and
collect a penalty, in addition to the assessment, of 1 percent of the
assessment for each month or part of a month that the payment is
delayed or withheld.
(c) In the levying and collection of the assessment, a licensee
shall neither be assessed for nor be permitted to pay less than two
hundred fifty dollars ($250) per licensed location per year.
(d) If a licensee fails to pay the assessment on or before the
31st day of October, the commissioner may by order summarily suspend
or revoke the license issued to the licensee. If, after an order is
made, a request for hearing is filed in writing within 30 days, and a
hearing is not held within 60 days thereafter, the order is deemed
rescinded as of its effective date. During any period when the
license is revoked or suspended, a licensee shall not engage in the
business of servicing student loans in this state pursuant to this
division except as may be permitted by order of the commissioner.
However, the revocation, suspension, or surrender of a license shall
not affect the powers of the commissioner as provided in this
division.
28146. (a) A licensee shall file an annual report with the
commissioner, on or before the 15th day of March, giving the relevant
information that the commissioner reasonably requires concerning the
business and operations conducted by the licensee in the state
during the preceding calendar year, including information regarding
the number of loans that are sold, assigned, or transferred to
another party. The individual annual reports filed pursuant to this
section shall be made available to the public for inspection. The
report shall be made under oath and in the form prescribed by the
commissioner.
(b) A licensee shall make other special reports that may be
required by the commissioner.
28148. (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 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.
(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. 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.
28150. A licensee that ceases to service student loans to
borrowers shall inform the commissioner in writing and surrender the
license and all other indicia of license to the commissioner. The
commissioner may require a licensee to file a plan for the
disposition of the servicing business that includes, but is not
limited to, a closing audit. Upon receipt of the written notice and
plan, if required, the commissioner shall determine whether the
licensee has violated this division. The commissioner shall give a
licensee notice of accepting a surrendered license, and a license
shall not be deemed surrendered until the commissioner accepts its
tender in writing.
CHAPTER 4. ADMINISTRATION AND POWER OF THE COMMISSIONER
28152. (a) As often as the commissioner deems necessary and
appropriate, but at least once every 36 months, the commissioner
shall examine the affairs of each licensee for compliance with this
division. The commissioner shall appoint suitable persons to perform
the examination. The commissioner and his or her appointees may
examine the books, records, and documents of the licensee, and may
examine the licensee's officers, directors, employees, or agents
under oath regarding the licensee's operations. The commissioner may
cooperate with any agency of the state, the federal government, or
other states.
(b) Unless otherwise exempt pursuant to Section 28102, 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 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.
(e) The commissioner shall provide a written statement of the
findings of the examination, issue a copy of that statement to the
licensee and take appropriate steps to ensure correction of any
violations of this division.
(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.
CHAPTER 5. ENFORCEMENT
28154. (a) If a licensee fails to do either of the following, the
commissioner shall impose a penalty in a sum of up to one hundred
dollars ($100) for every day:
(1) To make any report required by law or by the commissioner
within 10 days from the day designated for the making of the report,
or within any extension of time granted by the commissioner.
(2) To include therein any matter required by law or by the
commissioner.
(b) The commissioner may by order summarily suspend or revoke the
license if a licensee fails to file any report required by this
division.
28156. (a) The commissioner may, after appropriate notice and
opportunity for hearing, by order, censure or suspend for a period
not exceeding 12 months, or bar from any position of employment,
management, or control of any licensee, or any other person, if the
commissioner finds either of the following:
(1) That the censure, suspension, or bar is in the public interest
and that the person has committed or caused a violation of this
division or rule or order of the commissioner, which violation was
either known or should have been known by the person committing or
causing it or has caused material damage to the licensee or to the
public.
(2) That the person has been convicted of or pleaded nolo
contendere to any crime, or has been held liable in any civil action
by final judgment, or any administrative judgment by any public
agency, if that crime or civil or administrative judgment involved
any offense specified in subdivision (b) of Section 50317, or any
other offense reasonably related to the qualifications, functions, or
duties of a person engaged in the business in accordance with the
provisions of this division.
(b) Within 15 days from the date of a notice of intention to issue
an order pursuant to subdivision (a), the person may request a
hearing under the Administrative Procedure Act (Chapter 5 (commencing
with Section 11500) of Division 3 of Title 2 of the Government
Code). Upon receipt of a request, the matter shall be set for hearing
to commence within 30 days after such receipt unless the person
subject to this division consents to a later date. If no hearing is
requested within 15 days after the mailing or service of such notice
and none is ordered by the commissioner, the failure to request a
hearing shall constitute a waiver of the right to a hearing.
(c) Upon receipt of a notice of intention to issue an order
pursuant to this section, the person who is the subject of the
proposed order is immediately prohibited from engaging in any
servicing.
(d) Persons suspended or barred under this section are prohibited
from participating in any business activity of a licensee and from
engaging in any business activity on the premises where a licensee is
servicing.
(e) This section shall apply to any violation, conviction, plea,
or judgment occurring at any time prior to and after the enactment of
this section.
28158. If, after investigation, the commissioner has reasonable
grounds to believe that a licensee is conducting business in an
unsafe or injurious manner, the commissioner shall, by written order
addressed to the licensee, direct the discontinuance of the unsafe or
injurious practices. The order shall be effective immediately, but
shall not become final except in accordance with the provisions of
Section 28164.
28160. Whenever, in the opinion of the commissioner, a person is
engaged in the business of servicing student loans in this state,
either actually or through subterfuge, without a license from the
commissioner, the commissioner may order that person to desist and
refrain. If, within 30 days after an order is served, a request for a
hearing is filed in writing and the hearing is not held within 60
days of the filing, the order is rescinded. This section does not
apply to persons exempted under subdivision (b) of Section 28102.
28162. If, after investigation, the commissioner has reasonable
grounds to believe that a licensee is failing to comply with this
division or any regulation or order of the commissioner, the
commissioner shall, by written order addressed to the licensee,
direct the discontinuance of the failure to comply. The order shall
be effective immediately, but shall not become final except in
accordance with the provisions of Section 28164.
28164. (a) No order issued pursuant to this chapter may become
final except after notice to the affected licensee of the
commissioner's intention to make the order final and of the reasons
for the finding. The commissioner shall also notify the licensee that
upon receiving a request, the matter will be set for hearing to
commence within 15 business days after receipt. The licensee may
consent to have the hearing commence at a later date. If no hearing
is requested within 30 days after the mailing or service of the
required notice, and none is ordered by the commissioner, the order
may become final without hearing and the licensee shall immediately
discontinue the practices named in the order. If a hearing is
requested or ordered, it shall be held in accordance with the
provisions of the Administrative Procedure Act (Chapter 5 (commencing
with Section 11500) of Part 1 of Division 3 of Title 2 of the
Government Code), and the commissioner shall have all of the powers
granted under that act. If, upon the hearing, it appears to the
commissioner that the licensee is conducting business in an unsafe
and injurious manner or is failing to comply with this division or
any regulation or order of the commissioner, the commissioner shall
make the order of discontinuance final and the licensee shall
immediately discontinue the practices named in the order.
(b) The licensee has 10 days after an order is made final to
commence an action to restrain enforcement of the order. If the
enforcement of the order is not enjoined within 10 days by the court
in which the action is brought, the licensee shall comply with the
order.
(c) The commissioner may immediately revoke the licensee's license
if the licensee fails to comply with any order issued under this
division. The commissioner shall not revoke the license if, within 10
days from the effective date of the revocation order, the licensee
secures a court order restraining the enforcement of the commissioner'
s revocation order.
28166. The commissioner may issue an order suspending or revoking
a license if, after notice and an opportunity for hearing, the
commissioner finds any of the following:
(a) The licensee is violating this division or a regulation
adopted or an order issued under this division.
(b) The licensee does not cooperate with an examination or
investigation by the commissioner.
(c) The licensee engages in fraud, intentional misrepresentation,
or gross negligence in servicing a student loan.
(d) The competence, experience, character, or general fitness of
the licensee, an individual specified in Section 28116, or any person
responsible for servicing a student loan for the licensee indicates
that it is not in the public interest to permit the licensee to
continue servicing student loans.
(e) The licensee engages in unsafe or injurious practice.
(f) The licensee is insolvent, suspends payment of its
obligations, or makes a general assignment for the benefit of its
creditors.
(g) Any fact or condition exists that, if it had existed at the
time the licensee applied for the license, would have been grounds
for denying the application.
28168. (a) If, after investigation, the commissioner has
reasonable grounds to believe that a person has engaged or is about
to engage in any act or practice constituting a violation of any
provision of this division or any rule or order hereunder, the
commissioner may bring an action to enjoin the acts or practices or
to enforce compliance with this division or any rule or order adopted
under this division. The action shall be brought in the name of the
people of the State of California in the superior court. Upon a
proper showing, a permanent or preliminary injunction, restraining
order, or writ of mandate shall be granted. A receiver, monitor,
conservator, or other designated fiduciary or officer of the court,
which may include the commissioner, may be appointed for the
defendant or the defendant's assets. Any other ancillary relief may
be granted as appropriate.
A receiver, monitor, conservator, or other designated fiduciary or
officer of the court appointed by the superior court pursuant to
this section may, with the approval of the court, exercise any or all
of the powers of the defendant's officers, directors, partners,
trustees, or persons who exercise similar powers and perform similar
duties. The powers include the filing of a petition for bankruptcy.
No action at law or in equity may be maintained by any party against
the commissioner, or a receiver, monitor, conservator, or other
designated fiduciary or officer of the court, by reason of their
exercising these powers or performing these duties pursuant to the
order of, or with the approval of, the superior court.
(b) If the commissioner determines it is in the public interest,
the commissioner may include in any action authorized by subdivision
(a) a claim for ancillary relief. The ancillary relief may include,
but not be limited to, restitution or disgorgement or damages on
behalf of the persons injured by the act or practice constituting the
subject matter of the action. The court shall have jurisdiction to
award additional relief.
28170. (a) If, upon inspection, examination or investigation,
based upon a complaint or otherwise, the department has cause to
believe that a person is engaged in the business of servicing student
loans without a license, or a licensee or person is violating any
provision of this division or any rule or order thereunder, the
department may issue a citation to that person in writing, describing
with particularity the basis of the citation. Each citation may
contain an order to desist and refrain and an assessment of an
administrative penalty not to exceed two thousand five hundred
dollars ($2,500). All penalties collected under this section shall be
deposited in the State Corporations Fund.
(b) 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 as described in subdivision (d), the citation shall
be deemed final.
(d) Any hearing under this section shall be conducted in
accordance with Chapter 5 (commencing with Section 11500) of Part 1
of Division 3 of Title 2 of the Government Code, and in all states
the commissioner has all the powers granted therein.
(e) After the exhaustion of the review procedures provided for in
this section, the department may apply to the appropriate superior
court for a judgment in the amount of the administrative penalty and
order compelling the cited person to comply with the order of the
department. The application, which shall include a certified copy of
the final order of the department, shall constitute a sufficient
showing to warrant the issuance of the judgment and order.
28172. (a) Any person who violates a provision of this division,
or any rule or order under this division, shall be liable for a civil
penalty not to exceed two thousand five hundred dollars ($2,500) for
each violation. This penalty shall be assessed and recovered in a
civil action brought in the name of the people of the State of
California by the commissioner in any court of competent
jurisdiction.
(b) As applied to the penalties for acts in violation of this
division, the remedies provided by this section and by other sections
of this division are not exclusive, and may be sought and employed
in any combination to enforce the provisions of this division.
28174. (a) The commissioner may refer the evidence that is
available concerning any violation of this division or of any rule or
order adopted under this division to the district attorney of the
county in which the violation occurred. The district attorney may,
with or without the commissioner's
referral, institute criminal proceedings under this
division. The commissioner and his or her counsel, deputies, or
assistants may, upon request of the district attorney, assist the
district attorney in presenting the law or facts at the trial.
(b) After an examination, investigation, or hearing under this
division, if the commissioner deems it of public interest or
advantage, he or she may certify a record to the proper prosecuting
official of the county or city in which the act complained of,
examined, or investigated occurred.
28176. All hearings provided for in this division shall be
conducted in accordance with the provisions of Chapter 5 (commencing
with Section 11500) of Part 1 of Division 3 of Title 2 of the
Government Code. The commissioner has all the powers granted therein.
CHAPTER 6. MISCELLANEOUS
28178. If any provision of this division or the application
thereof to any person or circumstances is held invalid, illegal, or
unenforceable, such invalidity, illegality, or unenforceability shall
not affect other provisions or applications of this division that
can be given effect without the invalid, illegal, or unenforceable
provision or application, and, to this end, the provisions of this
division are declared to be severable.
28180. The rights and remedies provided in this division are in
addition to any other rights and remedies provided by law.
28182. This division shall become operative on July 1, 2018. The
commissioner may take any necessary actions to exercise the authority
pursuant to this division to prepare for the July 1, 2018, operative
date on and after January 1, 2017.
SEC. 3. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
SEC. 4. The Legislature finds and declares that Section 2 of this
act, which adds Section 28152 to the Financial Code, imposes a
limitation on the public's right of access to the meetings of public
bodies or the writings of public officials and agencies within the
meaning of Section 3 of Article I of the California Constitution.
Pursuant to that constitutional provision, the Legislature makes the
following findings to demonstrate the interest protected by this
limitation and the need for protecting that interest:
Protecting from public disclosure limited confidential information
provided by licensees to the Commissioner of Business Oversight
properly balances protecting legitimate private economic interests
and public interests in effective regulation.
