John L. Culhane, Jr., Partner State Servicing Laws, State Enforcement Actions and Other Noteworthy Developments NCHER LEGAL COMMITTEE MEETING March 24, 2017 Washington, D.C. John L. Culhane, Jr., Partner Consumer Financial Services Group Ballard Spahr LLP 215.864.8535 culhane@ballardspahr.com John C. Grugan, Partner Consumer Financial Services Litigation Group Ballard Spahr LLP 215.864.8226 gruganj@ballardspahr.com Copyright 2017 by Ballard Spahr LLP

Features of New State Servicing Statutes Vary Student loan ombudsman Servicer licensing Dispute resolution procedures Servicing transfer notices Disclosure of repayment and loan forgiveness options Other conduct requirements and restrictions Record retention Penalties for non-compliance

Connecticut – Public Act 15-162 Student loan ombudsman Designated by Commissioner of Department of Banking Duties include resolving and reporting on borrower complaints Licensing (took effect July 1, 2016) Required to service loans to CT residents (borrower or cosigner) Servicing definition tracks CFPB larger participant rule for payments but then refers to “other administrative services” Banks and subsidiaries exempt but subject to recordkeeping rules Dispute resolution procedures No formal requirements Ombudsman and Banking Commissioner can get involved

Connecticut – Public Act 15-162 (cont.) Servicing transfer notices Law does not address Disclosure of repayment and loan forgiveness options Law does not specifically address Other conduct requirements and restrictions Employing scheme, device, or artifice to defraud or mislead (directly or indirectly) Engaging in any unfair or deceptive practice toward any person or omitting any material information in connection with servicing Obtaining property by fraud or misrepresentation

Connecticut – Public Act 15-162 (cont.) Other conduct requirements and restrictions (cont.) Knowingly misapplying or recklessly applying loan payments Knowingly or recklessly providing inaccurate information to credit bureau Failing to report favorable and unfavorable payment histories to a nationally recognized credit bureau Refusing to communicate with an authorized representative of the student loan borrower Negligently making a false statement or knowingly and willfully omitting a material fact in a government report

Connecticut – Public Act 15-162 (cont.) Other conduct requirements or restrictions (cont.) Failing to comply with all applicable federal laws and regulations, including the Truth in Lending Act Record retention At least 2 years following final payment or assignment Penalties for non-compliance Various administrative remedies Apparently no private right of action

Connecticut – Public Act 15-162 (cont.) Effective date Generally effective October 1, 2015 Licensing effective July 1, 2016 Conduct provisions effective July 1, 2016 Proposed amendment # 1 – Raised H.B. No. 7141 Generally effective October 1, 2017 Applies conduct requirements to servicer and control person Requires servicer and control person to supervise the operation of the business to ensure compliance with applicable law

Connecticut – Public Act 15-162 (cont.) Proposed amendment # 2 – Raised H.B. No. 7145 Generally effective October 1, 2017 Directs Banking Commissioner to set service standards Standards to be posted on the Department of Banking’s web site on or before January 1, 2018

California – Ch. 824, Statutes of 2016 Student loan ombudsman Law is silent Servicer licensing Required to service “in this state” Servicing definition tracks CFPB larger participant rule Banks exempt; subsidiaries not specifically mentioned Dispute resolution procedures Acknowledge “qualified written request” within 5 business days Respond within 30 business days (15-day extension possible)

California – Ch. 824, Statutes of 2016 (cont.) Dispute resolution procedures (cont.) No adverse credit reports for 60 days with payment QWR Servicing transfer notices At least 15 days before next required payment Information must be transferred to new servicer within 45 days Disclosure of repayment and loan forgiveness options Must be provided on website (information or links) Must be provided at least once a year in written correspondence (information) or by email (links)

California – Ch. 824, Statutes of 2016 (cont.) Other conduct requirements and restrictions Employing scheme, device, or artifice to defraud or mislead (directly or indirectly) Engaging in any unfair or deceptive practice toward any borrower or omitting any material information in connection with servicing Misapplying loan payments Failing to accurately report payment performance to at least one nationwide consumer reporting agency Refusing to communicate with an authorized representative of the borrower Negligently or intentionally making a false statement or knowingly and willfully omitting a material fact in a government report

California – Ch. 824, Statutes of 2016 (cont.) Record retention At least 3 years after payment, sale, assignment or transfer Penalties for non-compliance Various administrative remedies Apparently no private right of action Effective date Certain provisions authorizing conduct by the Commissioner are effective January 1, 2017 Licensing and other provisions are effective January 1, 2018

Washington, D.C. – Act 21-571 Student loan ombudsman Designated by Commissioner of Department of Securities, Insurance and Banking Duties include resolving and reporting on borrower complaints Servicer licensing Required to service loans to DC residents (borrower or cosigner) Servicing definition largely tracks CFPB larger participant rule Banks exempt; subsidiaries not specifically mentioned Licensing is administered by the Ombudsman

Washington, D.C. – Act 21-571 (cont.) Dispute resolution procedures Bill is silent Servicing transfer notices Disclosure of repayment and loan forgiveness options Other conduct requirements and restrictions

Washington, D.C. – Act 21-571 (cont.) Record retention Bill is silent Penalties for non-compliance Effective date Generally effective February 18, 2017 Implementing rules required within 180 days of effective date

Other Pending Bills Massachusetts – HB 2173; SB 129 Minnesota – HF 21 Missouri – HB 620 New Mexico – HB 318 New York – AB 3008; SB 2008 (Executive Budget) Virginia – HB 1915; SB 1053 (defeated) Washington – HB 1440; SB 5210

State Regulatory Activities State authorities now are increasingly aggressive Some examples Illinois and Washington – recent suit against student loan servicer Massachusetts – dedicated student lending enforcement unit New York AG, NYS DFS – conducting multiple investigations Washington – Student Loan Bill of Rights proposed by AG Ferguson Coordination between states irregular but increasing

Massachusetts Attorney General Active enforcement unit Focused on: IBR processing On/off shore staffing and connection with effective communication with borrowers SCRA benefits Willing to explore alternatives to payment to resolve enforcement actions

Debt Settlement Many states have debt settlement or debt management laws that should apply to student loan debt relief companies Laws require licensing or bonding, prohibit the collection of advance fees or other upfront payments, and impose stringent disclosure requirements Many state attorneys general now have investigative units that cover student loan fraud which is broadly defined Illinois Attorney General has filed suit against seven different student loan debt relief companies, only one of which was located in-state New Hampshire Banking Department previously entered into a consent order with one student loan debt relief company

Litigation Third party collections Credit reporting Marketing/UDAP claims relating to value of program/other representations

Thank you! Panelists John C. Grugan John L. Culhane, Jr. Partner Consumer Financial Services Group 215.864.8535 culhane@ballardspahr.com John C. Grugan Consumer Financial Services Litigation Group 215.864.8226 gruganj@ballardspahr.com

Panelist – John L. Culhane, Jr. Partner at Ballard Spahr and a member of the firm’s Consumer Financial Services, Mortgage Banking, Bank Regulation and Supervision, Higher Education, and Privacy and Data Security Groups as well as its Marketplace Lending Task Force, Fair Lending Task Force, TCPA Task Force, and Military Lending Act Task Force Compliance practice emphasizes counseling clients on the development and implementation of innovative loan, leasing, and payment programs, and includes counseling on fair lending, servicing and collection issues Regulatory practice includes preparing clients for banking agency and CFPB targeted fair lending and full spectrum compliance examinations as well as assisting in the defense of consumer class actions, attorney general investigations, and agency enforcement actions Named a top consumer financial services lawyer by Chambers USA, 2015 & 2016 Charter member of the American College of Consumer Financial Services Lawyers Former Chair of the Subcommittee on Fair Lending of the ABA Committee on Consumer Financial Services

Panelist – John C. Grugan Partner at Ballard Spahr and a member of the firm’s Consumer Financial Services Litigation, White Collar Defense/Internal Investigations, and Securities Litigation Groups Concentrates his practice on government enforcement defense, regularly defending clients during investigations conducted by, and in litigation brought by, the Consumer Financial Protection Bureau, the U.S. Securities and Exchange Commission, the U.S. Department of Justice, the U.S. Department of Education, self-regulatory organizations, state attorneys general, and state securities and banking regulators Experience includes conducting internal investigations on behalf of companies or their boards of directors Frequent author and speaker on issues relating to consumer financial services regulation and litigation DMEAST #28816286v1