2019 -- H 5936 SUBSTITUTE A

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LC002253/SUB A

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2019

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A N   A C T

RELATING TO FINANCIAL INSTITUTIONS -- STUDENT LOAN BILL OF RIGHTS ACT

     Introduced By: Representatives McNamara, Alzate, Amore, Cortvriend, and Newberry

     Date Introduced: March 29, 2019

     Referred To: House Judiciary

     (Attorney General/General Treasurer)

It is enacted by the General Assembly as follows:

     SECTION 1. Title 19 of the General Laws entitled "FINANCIAL INSTITUTIONS" is

hereby amended by adding thereto the following chapter:

CHAPTER 33

STUDENT LOAN BILL OF RIGHTS ACT

     19-33-1. Title.

     This chapter shall be known and may be cited as the "Student Loan Bill of Rights Act."

     19-33-2. Definitions.

     As used in this chapter:

     (1) "Commissioner" means the commissioner of postsecondary education.

     (2) "Department" means the department of business regulation, division of banking.

     (3) "Director" means the director of the department of business regulation or designee.

     (4) "Distressed borrower" means a student loan education borrower who is not considered

current on their student education loan payments by the student loan servicer.

     (5) "Student education loan" means any loan made to a student loan borrower primarily

for personal use to finance postsecondary education or other school-related expenses, and does

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.

     (6) "Student loan borrower" means:

     (i) Any resident of this state who has received or agreed to pay a postsecondary student

education loan; or

     (ii) Any person who shares responsibility, as a guarantor or by other legal obligation,

with such resident for repaying the postsecondary student education loan for another.

     (7) "Student loan servicer" means any person or entity who engages in student loan

servicing as defined in this chapter.

     (8) "Student loan servicing" or "servicing" means:

     (i)(A) Receiving any scheduled periodic payments from a student loan borrower or

notification of such payments; and

     (B) Applying payments to the student loan borrower's account pursuant to the terms of

the student education loan or of the contract governing the servicing;

     (ii) During a period when no payment is required on a student education loan,

maintaining account records for the loan; and

     (iii) Communicating with the student loan borrower regarding the loan, on behalf of the

loan's holder; or

     (iv) Interactions with a student loan borrower, including activities to help prevent default

on obligations arising from student education loans, conducted to facilitate the activities

described in this section.

     19-33-3. Borrower assistance, education, and complaints.

     (a) The department of attorney general's consumer protection unit, in collaboration with

the director, general treasurer, and commissioner, shall:

     (1) Receive, review, and attempt to resolve complaints from student loan borrowers;

     (2) Compile and analyze data on student loan borrower complaints;

     (3) Assist student loan borrowers to understand their rights and responsibilities under the

terms of student education loans;

     (4) Provide information to the public, agencies, the general assembly, and others

regarding the problems and concerns of student loan borrowers and make recommendations for

resolving those problems and concerns;

     (5) Share information concerning the availability of the consumer protection unit to assist

student loan borrowers and potential student loan borrowers, as well as public institutions of

higher education, student loan servicers, and any other participant in student education loan

lending with any student loan servicing concerns;

     (6) Take any other actions necessary to fulfill the borrower assistance, education, and

complaints-related duties in this chapter; and

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     (b) The attorney general, the director, the general treasurer, and the commissioner, or

designees, shall meet at least once per quarter to coordinate their efforts under this chapter.

     19-33-4. Registration of student loan servicers.

     (a) Each person or entity that services any student education loan issued to a student loan

borrower after July 1, 2019, shall register with the department as a student loan servicer no later

than September 30, 2019, or within thirty (30) days of conducting servicing of student education

loans, whichever is earlier.

     (b) The registration provisions of this chapter shall not apply to:

     (1) Any person or entity that services fewer than six (6) student education loans in this

state during any consecutive twelve (12) month period; and

     (2) Any person or entity that services loans for education other than postsecondary

education.

     (c) As part of that registration, the person or entity shall:

     (1) Complete a registration in the form promulgated by the department providing the

information requested by the application;

     (2) Pay an annual registration fee of one thousand dollars ($1,000);

     (3) Provide a bond in which the registrant shall be the obligor, and which shall run to the

state for the use of the state and of the person who may have a cause of action against the obligor

of the bond under the provisions of this chapter. The bond shall be perpetual and shall be

conditioned upon the obligor conforming to the provisions of this chapter and all regulations

thereunder and the obligor will pay to the state and to any person all money that may become due

or owing to the state or to the person from the obligor under the provisions of this chapter. The

bond shall provide for notice directly to the department in the manner specified by the

department, if the bond is cancelled by the surety for any reason. The bond shall be in the sum of

fifty thousand dollars ($50,000).

     (4) Appoint, and thereafter maintain, a resident agent in this state with authority to accept

service of process for the registrant in this state, including the process of garnishment:

     (i) Service of process upon the agent shall be deemed sufficient service upon the

registrant; and

     (ii) Any process, including the process of garnishment, may be served upon the director,

as agent of the registrant, in the event that no resident agent can be found upon whom service can

be made, or the registrant has failed to designate a resident agent as required.

     (d) No registration shall be transferable or assignable. A change in ownership of less than

twenty-five percent (25%) of the voting stock or equity interests of a registrant shall not be

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considered a transfer or assignment of the registration. A change in ownership of twenty-five

percent (25%) or more of the voting stock or equity interests shall require notification to the

department, and registration by the transferee/assignee within fifteen (15) days of the change in

ownership. A change in name shall require notification to the department within fifteen (15) days.

     (e) Any registrant shall, within twenty-four (24) hours after actual knowledge, notify the

department of the occurrence of any of the following events:

     (1) The institution of bankruptcy, receivership, reorganization, or insolvency proceedings

regarding a registrant;

     (2) The institution of any adverse government action against a registrant; or

     (3) Any felony indictment or conviction of any registrant or any officers, directors,

owners, employees, members, or partners thereof.

     (f) Student loan servicers shall designate and provide contact information for an

individual to represent the student loan servicer in communications with the department. Such

information shall be updated within ten (10) days of any change thereto.

     (g) Registration shall be valid for one calendar year, and student loan servicers shall be

required to renew their registration with the department annually.

     (h) The department may assess a fine of ten thousand dollars ($10,000) on any student

loan servicer that services student education loans for thirty (30) or more days without registering

and complying with the conditions provided in this section.

     (i) The department may share any information gathered through its registration or

examination of student loan servicers with the attorney general.

     19-33-5. Servicer registration account established.

     There is established a restricted receipt account to be known as the "servicer registration

account" which shall be a separate account within the department. Registration fees and other

monies, excluding examination fees pursuant to § 19-33-9, received by the department pursuant

to the terms of this chapter shall be deposited into the account. Monies deposited in the account

shall be transferred to the department of attorney general's student loan consumer protection

account at the request of the attorney general and shall be expended for the purpose of

administering the provisions of this chapter.

     19-33-6. Maintenance of records.

     (a) Each student loan servicer shall maintain complete records of each student education

loan transaction, including recordings of communications with borrowers, for not less than two

(2) years following the final payment on such student education loan or the assignment of such

student education loan, whichever occurs first, or any longer period as may be required by any

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other provision of the general or public laws.

     (b) If requested by the division of banking, each student loan servicer shall make all

records available, not later than five (5) business days after requested. Upon request, the

department may grant a student loan servicer additional time to make such records available.

     19-33-7. Reporting requirements.

     (a) Each registrant shall annually, on or before March 31, file a report with the

department, giving any relevant information that the department may reasonably require

concerning the business and operations during the preceding calendar year of registrant within the

state. At the time of filing each report, the sum of fifty-five dollars ($55.00) per registration shall

be paid by the registrant to the department. Any registrant that delays the transmission of any

report required by the provisions of this chapter beyond the limit, unless additional time is

granted, in writing, for good cause, the department shall assess a penalty of twenty-five dollars

($25.00) for each day of the delay.

     19-33-8. Responsibilities of student loan servicers.

     (a) A student loan servicer shall provide annually, and at the request of a student loan

borrower, the terms of their loan, progress toward repayment, and eligibility for any loan relief

programs including, but not limited to, income driven repayment plans, public service loan

forgiveness, forbearance and deferment.

     (b) A student loan servicer shall establish policies and procedures, and implement them

consistently, in order to facilitate evaluation of private student loan alternative repayment

arrangement requests, including providing accurate information regarding any private student

loan alternative repayment arrangements that may be available to the borrower through the

promissory note, or that may have been marketed to the borrower through marketing materials.

     (c) A private student loan alternative repayment arrangement shall consider the

affordability of repayment plans for a distressed borrower, as well as the investor, guarantor, and

insurer guidelines, and previous outcome and performance information.

     (d) If a student loan servicer offers private student loan repayment arrangements, a

student loan servicer shall consistently present and offer those arrangements to borrowers with

similar financial circumstances.

     (e) If a borrower inquires of a servicer of private student loans about consolidating or

refinancing a federal student loan into a private student loan, the servicer of private student loans

must disclose in advance of the refinancing or consolidation, any benefits or protections exclusive

to federal student loans that may be lost as a result of the consolidation or refinancing.

     (f) A student loan servicer shall respond to a written inquiry from a student loan

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borrower, or the representative of a student loan borrower, within ten (10) business days after

receipt of the request, and provide information relating to the request and, if applicable, the action

the student loan servicer will take to correct the account or an explanation for the student loan

servicer's position that the borrower's account is correct.

     (1) The ten (10) day period described in subsection (e) of this section may be extended

for not more than fifteen (15) days, if before the end of the ten (10) day period the student loan

servicer, notifies the borrower or the borrower's representative of the extension, and the reasons

for the delay in responding.

     (2) After receipt of a written request related to a credit reporting dispute on a borrower's

payment on a student education loan, a student loan servicer shall not furnish adverse information

to a consumer reporting agency regarding a payment that is the subject of the written inquiry.

     (g) Except as provided by federal law or required by a student loan agreement, a student

loan servicer shall inquire of a borrower how to apply an overpayment to a student education

loan. A borrower's direction on how to apply an overpayment to a student education loan shall

stay in effect for any future overpayments during the term of a student education loan until the

borrower provides different directions. For purposes of this section, "overpayment" means a

payment on a student education loan in excess of the monthly amount due from a borrower on a

student education loan, also commonly referred to as a prepayment.

     (h) Where a borrower has multiple loans at the same level of delinquency, a student loan

servicer shall apply partial payments in a manner that minimizes late fees and negative credit

reporting by applying such payments to satisfy as many individual loan payments as possible on a

borrower's account. For purposes of this section, "partial payment" means a payment on a student

loan account that contains multiple individual loans in an amount less than the amount necessary

to satisfy the outstanding payment due on all loans in the student loan account, also commonly

referred to as an underpayment.

     (i) In the event of the sale, assignment, or other transfer of the servicing of a student

education loan that results in a change in the identity of the person to whom a student loan

borrower is required to send payments or direct any communication concerning the student

education loan, the following provisions apply:

     (1) As a condition of a sale, an assignment, or any other transfer of the servicing of a

student education loan, a student loan lender shall require the new student loan servicer to honor

all benefits originally represented as available to a student loan borrower during the repayment of

the student education loan and preserve the availability of the benefits, including any benefits for

which the student loan borrower has not yet qualified.

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     (2) A student loan servicer shall transfer to the new student loan servicer all records

regarding the student loan borrower, the account of the student loan borrower, and the student

education loan of the student loan borrower.

     (3) The records required under subsection (h)(2) of this section shall include the

repayment status of the student loan borrower and any benefits associated with the student

education loan of the student loan borrower.

     (4) The student loan servicer shall complete the transfer of records required under

subsection (h)(2) of this section within forty-five (45) days after the sale, assignment, or other

transfer of the servicing of a student education loan.

     (5) The parties shall notify all student loan borrowers impacted by the sale, assignment,

or other transfer of the servicing of a student education loan at least seven (7) days before the next

payment on the loan is due. Notice must include: the identity of the new loan holder and/or

servicer, the effective date of the transfer, the date on which the old servicer will no longer accept

payments, the date on which the new servicer will begin to accept payments, and contact and

billing information for loan payments.

     (j) A student loan servicer that services a student education loan shall adopt policies and

procedures to verify that the student loan servicer has received all records regarding the student

loan borrower, the account of the student loan borrower, and the student education loan of the

student loan borrower, including the repayment status of the student loan borrower and any

benefits associated with the student education loan of the student loan borrower.

     (k) When a prior student loan servicer receives a payment intended for the new student

loan servicer, the prior student loan servicer must promptly transfer the payment to the new

servicer, along with the date the prior servicer received the payment.

     (l) When a new servicer receives a payment from a prior servicer under subsection (j) of

this section, the payment must be applied as of the date received by the prior servicer. A student

loan servicer must implement processes and controls to ensure a student loan borrower does not

incur additional interest, fees, or delinquency due to complications related to the sale, assignment,

or other transfer of the servicing of a student education loan.

     19-33-9. Examinations.

     (a) In addition to any other authority provided under this chapter, the department shall

have the authority to conduct examinations of registrants.

     (b) In order to carry out the purposes of this chapter, the department may:

     (1) Retain attorneys, accountants or other professionals and specialists as examiners or

auditors to conduct or assist in the conduct of examinations. The costs of such persons shall be

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borne by the registrant;

     (2) Enter into agreements or relationships with other government officials or regulatory

associations in order to improve efficiencies and reduce regulatory burden by sharing resources,

standardized or uniform methods or procedures, and documents, records, information or evidence

obtained under this section;

     (3) Use, hire, contract or employ public or privately available analytical systems,

methods or software to examine the student loan servicer or person subject to the provisions of

this chapter. The costs of such systems shall be borne by the registrant;

     (4) Accept and rely on examination reports made by other government officials, within or

outside of the state; and

     (5) Accept audit reports made by an independent certified public accountant for the

student loan servicer or person subject to the provisions of this chapter in the course of that part

of the examination covering the same general subject matter as the audit and incorporate the audit

report in the report of examination or other writing of the department.

     (c) The department may at any time examine the student education loans and business

and examine the books, accounts, records, and files used therein, of every registrant and person

who shall be engaged in any activity that requires a registration under this chapter, whether the

person shall act, or claim to act, as principal or agent, or under or without the authority of this

chapter. For that purpose, the department shall have free access to the offices and places of

business, books, accounts, paper, records, files, and safes, of all such persons. The department,

shall have authority to require the attendance of, and to examine under oath, any person whose

testimony may be required relative to the student education loans or the business or to the subject

matter of any examination, or hearing.

     (d) The department shall make an examination of the affairs, business, office, and records

of each registrant as often as is necessary, based upon all relevant factors, including the volume of

activity within the state. The total cost of an examination made pursuant to this section shall be

paid by the registrant or person being examined and shall include the following expenses:

     (1) One hundred fifty percent (150%) of the total salaries and benefits plus one hundred

percent (100%) of the travel and transportation expenses for the examining personnel engaged in

the examinations. The fees shall be paid to the department to, and for the use of, the state. The

examination fees shall be in addition to any taxes and fees otherwise payable to the state;

     (2) All reasonable technology costs related to the examination process. Technology costs

shall include the actual cost of software and hardware utilized in the examination process and the

cost of training examination personnel in the proper use of the software or hardware; and

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     (3) All necessary and reasonable education and training costs incurred by the state to

maintain the proficiency and competence of the examination personnel. All such costs shall be

incurred in accordance with appropriate state of Rhode Island regulations, guidelines, and

procedures.

     (e) The authority of this chapter shall remain in effect, whether such student loan servicer

or person subject to the provisions of this chapter acts or claims to act under any licensing or

registration law of this state, or claims to act without such authority.

     (f) No student loan servicer or person subject to examination under this section may

knowingly withhold, abstract, remove, mutilate, destroy or secrete any books, records, computer

records or other information.

     (g) The provisions of § 19-4-3 shall apply to investigatory records and examination

reports issued by other state and federal regulatory agencies, and the work papers of examinations

or investigations of registrants created by the department; provided, however, the director or

designee, is authorized to make public all consumer complaints and final examination reports

issued by the department as determined by the director or designee.

     19-33-10. Fines.

     (a) The director, after an administrative hearing pursuant to chapter 35 of title 42, may

issue fines upon a finding that the registrant violated the provisions of this chapter, or any

regulation or order lawfully made pursuant to this chapter; or take any other action provided for

in this chapter.

     (b) Any student loan servicer or the members, officers, directors, agents, and employees

of any student loan servicer who violate or participate in the violation of any of the applicable

provisions of this chapter, or any regulation promulgated thereunder shall be punished by a fine

of not more than two thousand dollars ($2,000) per violation. Each student education loan

constitutes a separate offense.

     19-33-11. Appeal and review.

     Any student loan servicer aggrieved by an action of the department in imposition of fines

shall have the right to appeal the action, order, or decision pursuant to chapter 35 of title 42.

     19-33-12. Prohibited conduct.

     No student loan servicer shall:

     (1) Directly or indirectly employ any scheme, device or artifice to defraud or mislead

student loan borrowers;

     (2) Engage in any unfair or deceptive practice toward any person or misrepresent or omit

any material information in connection with the servicing of a student education loan, including,

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but not limited to, misrepresenting the amount, nature or terms of any fee or payment due or

claimed to be due on a student education loan, the terms and conditions of the loan agreement or

the borrower's obligations under the loan;

     (3) Obtain property by fraud or misrepresentation;

     (4) Knowingly misapply or recklessly apply student education loan payments to the

outstanding balance of a student education loan;

     (5) Knowingly or recklessly provide inaccurate information to a credit bureau, thereby

harming a student loan borrower's creditworthiness;

     (6) Fail to report both the favorable and unfavorable payment history of the student loan

borrower to a nationally recognized consumer credit bureau at least annually if the student loan

servicer regularly reports information to a credit bureau;

     (7) Refuse to communicate with an authorized representative of the student loan borrower

who provides a written authorization signed by the student loan borrower, provided the student

loan servicer may adopt procedures reasonably related to verifying that the representative is in

fact authorized to act on behalf of the student loan borrower;

     (8) Negligently make any false statement or knowingly or willfully make any omission of

a material fact in connection with any information or reports filed with a governmental agency or

in connection with any examination conducted by the department or investigation conducted by

the attorney general or other governmental agency; or

     (9) Fail to properly evaluate a student loan borrower for an income-driven or other

student loan repayment program or for eligibility for a public service loan forgiveness program

before placing the student loan borrower in forbearance or default, if an income-driven repayment

or other program is available to the student loan borrower except as otherwise provided in federal

law, federal student loan agreements, or a contract between the federal government and a student

loan servicer.

     19-33-13. Investigation and enforcement.

     The attorney general may enforce a violation of § 19-33-12 as an unlawful act or practice

under chapter 13.1 of title 6.

     19-33-14. Private actions.

     Any student loan borrower may bring an action under § 6-13.1-5.2 for a violation of § 19-

33-12 as an unlawful act or practice under chapter 13.1 of title 6.

     19-33-15. Student loan consumer protection account established.

     A student loan consumer protection restricted receipt account (the "account") is hereby

created within the department of the attorney general. Monies deposited in the account shall be

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expended by the attorney general for the purpose of administering the provisions of this chapter.

     19-33-16. Exemption.

     (a) For the purposes of this chapter, any federal or state chartered bank or credit union

that originates a student education loan, or acts as a servicer and any wholly owned subsidiary of

a bank or credit union, shall be exempt from the provisions of §§ 19-33-4, 19-33-6 through 19-

33-11, inclusive, §§ 19-33-12(9) and 19-33-14.

     (b) Student loan servicers that are not banks or credit unions operating under federal or

state charters, nor wholly owned subsidiaries thereof that service student loans on behalf of state

or federal chartered banks and credit unions, shall not be exempt from any section of this chapter.

     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO FINANCIAL INSTITUTIONS -- STUDENT LOAN BILL OF RIGHTS ACT

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     This act would create the "student loan bill of rights act", which would establish

guidelines for the attorney general's consumer protection unit, in collaboration with the director

of business regulation, the general treasurer, and the commissioner of postsecondary education to

receive and review complaints of student loan borrowers. In addition, the duties and

responsibilities of student loan servicers are set forth in the act.

     This act would take effect upon passage.

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