Presentation to NCHER Legal Meeting STUDENT LOAN Licensing Laws & Regulations ~~~ Presentation to NCHER Legal Meeting April 12, 2019

Presenters Linda J. Randby Deputy General Counsel PHEAA Legal Services Division Jessica E. Guise Assistant Chief Counsel All views expressed are those of the presenters and are not attributable to PHEAA or NCHER

Section 1: Commonalities of State Student Loan Licensing Laws

Background What prompted the State level push for Student Loan Servicer Licensing laws? CFPB oversight changes Students burdened with debt

History States that have passed laws 15 States with pending legislation 2019 California Connecticut Washington Illinois District of Columbia NY (budget regulation) AZ, CO, IA, ME, MA, MD, MN, MO, NJ, NM, NV, NY, OR, RI, SC

Common Themes in the Legislation Imposing servicing requirements Imposing licensing requirements Establishing an Ombudsman's office

Common Themes in the Legislation EXAMPLE: New Jersey's pending bill would impose servicing requirements and establish an Ombudsman's office.

Overview of Legislation Frequently the legislative intent expressed by states includes enhanced oversight of federal servicers in light of perceived FSA gaps. The bills are neutral to the loan holder/originator. Both privately and federally held loans are included based on the plain language of the bills.

Overview of Legislation First example: IL - definition, Section 1-5 "Student loan" or "loan" means any federal education loan or other loan primarily for use to finance a postsecondary education….”

Overview of Legislation Second example: WA - Section 2 “Consumer information about the differences between private student loans and federal student loans, including a brief overview of the availability of income-driven repayment plans and loan forgiveness programs for federal loans…”

Overview of Legislation Third example: WA - Section 14 “(5) In addition for all consumer loans made by a licensee that are a refinance of a federal student education loan, the licensee must provide to the borrower a clear and conspicuous disclosure that some repayment and forgiveness options available under federal student education loan programs, including without limitation income-driven repayment plans, economic hardship deferments, or public service loan forgiveness, will no longer be available to the borrower if he or she chooses to refinance federal student education loans with one or more consumer loans.

Scope & Exclusions The scope of the bills tends to be broad upon introduction and, as the bill moves through the legislative process and negotiations occur, exceptions to licensing requirements are introduced. For example, guaranty agencies are frequently excluded from licensing requirements or there are exclusions for servicers with minimum volume in a licensing state.

Scope & Exclusions State Agencies have not been exempt from licensing. For example, in Missouri, a licensing bill has been introduced and there is also a state agency that is also a not-for-profit federal student loan servicer.

UDAAP (Unfair, Deceptive or Abusive Acts or Practices) State servicer licensing bills are frequently drafted to make any failure to meet servicing requirements or engaging in a prohibited practices a UDAAP under the state's existing consumer protection law.

UDAAP (Unfair, Deceptive or Abusive Acts or Practices) For example, pending in Maryland's House Bill 594: Prohibiting a student loan servicer from employing any scheme, device, or artifice to mislead a student loan borrower; prohibiting a student loan servicer from engaging in any unfair, abusive, or deceptive trade practice toward any person; prohibiting a student loan servicer from knowingly or recklessly misapplying or refusing to correct a misapplication of a certain payment; requiring a student loan servicer to respond to a certain inquiry or complaint in a certain manner; etc.

Federal Law References The servicing requirements frequently include a requirement to comply with Federal consumer protection laws, such as the Truth in Lending Act. Regardless of whether a state has passed a student loan servicing law, compliance with Federal consumer protection laws when servicing loans is typically required.

Section 2: State Student Loan Licensing Requirements

Licensing Requirements Requirements Typically Include: Submission of filing on-line through the NMLS Resource Center Licensing and/or investigation fees and renewal fees Documents that affirm the servicer’s financial soundness requirements

Licensing Requirements Requirements Typically Include: Credit reports, fingerprinting and/or criminal histories for officers, principals, or directors Submission of loan servicing volume and other reports (annual assessment fees may apply) Compliance with investigations or examinations and production of financial records as part of the state's ongoing oversight of the servicer

Licensing Requirements Annual Assessment Fees: Some states require the calculation of annual fees based on loan volume in their state.

Licensing Requirements Annual Assessment Fee EXAMPLES: CA – By Sept 30th, Commissioner will notify the servicer of pro rata fee due by Oct 31, based on the loan volume in the annual report submitted on March 15th. Fee no less than $250/year. CT – After July 1st, Commissioner will notify the servicer of pro rata assessment, based on loan volume. WA – Due March 1st annually, based on loan volume and calculated at $38.46 per $1 million WA loan volume.

Servicing Requirements The servicing requirements can be either: SPECIFIC, such as the requirement to send responses to inquires from customers within a specific time frame, or BROAD, such as the prohibition against obtaining property by fraud or misrepresentation.

Servicing Requirements To the extent that a specific requirement would be preempted by conflict with a federal loan requirement, we should review for such conflicts. If a requirement is overly broad, concerns may be raised with industry groups.

Managing Change Monitor – for changes in the laws Analyze – laws, early and often Communicate – with internal and external stakeholders Decide Document, document, document – every step of the way!

Federal Requirements Higher Education Act 20 U.S.C. § 1098g “Loans made, insured, or guaranteed pursuant to a program authorized by title IV …shall not be subject to any disclosure requirements of any State law” Other Federal Consumer Protection laws? FCRA, GLBA

Q&A lrandby@pheaa.org jguise@pheaa.org