The problem: Student loan debt in the United States stands at an all-time high of approximately $1.5 trillion spread across more than 44 million borrowers. According to some observers, Massachusetts ranks 12th among states with the highest student debt burden, with average debt exceeding $30,000 per borrower. Against this backdrop, Massachusetts and other states have aspired to a larger regulatory and enforcement role with respect to student loan servicers, the industry participants with the closest relationship to borrowers.
The problem: Two current developments in Massachusetts have significant implications for student loan servicers: (i) state lawmakers are considering enacting a “student loan bill of rights” that would establish state-level regulations specifically aimed at servicers; and (ii) Massachusetts Attorney General Maura Healey has increased enforcement activities against servicers.
Lookin Ahead: Student loan servicers should begin preparing for the possibility of new state-level regulations and should adopt appropriate contingency plans. Servicers should also expect continued scrutiny from Attorney General Healey even if new regulations never materialize.
Brand new Student loan Bill regarding Liberties (“SL Statement from Liberties”) is actually brought in the Massachusetts legislature inside the 2017 since the Senate Bill No. 129. An amended type of the bill introduced unanimously throughout the Massachusetts Senate within the 2018 however, don’t show up to possess a ballot about Massachusetts House out of Agents. This new sponsors of one’s SL Bill off Legal rights refiled a property adaptation (as revised, H. 3977) and you will Senate adaptation (S. 160) to your 2019 course. The brand new Mutual Panel with the User Defense and you can Elite group Licensure held an effective hearing with the Senate variation inside the , plus the Shared Panel on Economic Qualities held a hearing towards the our house variation into the . Our home type is actually stated favorably from the Mutual Committee and you may upcoming regarded the house Panel to your Options. None sorts of the balance could have been scheduled getting a complete vote, however the expenses sponsors consistently reception greatly for the passing.
This is apparently modeled adopting the Consumer Monetary Security Bureau’s education loan ombudsman
It would would a state licensure and regulatory routine to possess servicers administered and you may administered by the Massachusetts Office out of Banking companies. The nonbank servicers would, the very first time, have to make an application for certificates at the mercy of annual renewal. The latest Department of Banks would offer certificates depending on requirements relevant on applicant’s economic reputation and you will maintenance means. Only financial institutions, borrowing from the bank unions, in addition to their subsidiaries is excused from this licenses needs.
From what regulating regimen, servicers carry out essentially become banned out-of engaging in unfair upkeep strategies or run one violates government statutes otherwise laws. They would feel at the mercy of investigations and you will examinations, and Department from Financial institutions could have the ability to suspend or revoke a permit otherwise impose fees and penalties having repair violations. The newest Office off Finance companies will be needed to promulgate applying legislation going to give further outline towards just what comprises a maintenance violation and also the extent out-of regulated facts. In lieu of the newest licensure techniques, the fresh SL Expenses out-of Legal rights shows that so it county supervision do apply at one another nonbank and you will financial servicers, although it was unclear whether or not and exactly how the levels otherwise form of out-of supervision you’ll differ among those institutions.
The new SL Costs of Liberties would also create a good “education loan ombudsman” to assist in solving certain problems off individuals. The balance contemplates your ombudsman you will definitely address activities, such as, connected with repayment choices, wage garnishments, non-payments, billing issues, range perform, and financing launch software. The fresh ombudsman would educate anyone on the student loan repayment choice and you may associated points. The fresh new ombudsman perform target things regarding each other nonbank and you may financial servicers.
Not one of these conditions do end up being immediately active in the event the bill turned rules, delivering servicers which have a primary shield for thinking. The terms pertaining to brand new ombudsman do start working when you look at the , as well as the certification and you may regulatory techniques perform begin working inside the .
Finally, passage of the fresh SL Expenses regarding Liberties carry out put Massachusetts when you look at the range together with other states that have enacted statutes especially dealing with scholar loan repair. Connecticut, Colorado, Illinois, Maine, Maryland, Nevada, Nj-new jersey, Ny, Rhode Island, and you may Arizona have all introduced education loan debts off liberties. Comparable laws and regulations has already already been introduced inside Iowa, Minnesota, Missouri, The brand new Mexico, North carolina, Ca, and Oregon. Even though some of these guidelines are up against federal preemption inquiries, they is still around viewed if or not one legislation you will, entirely or in region, feel invalidated towards preemption grounds. First and foremost, Massachusetts lawmakers do not seem to be dissuaded from this prospective uncertainty.
These types of enforcement steps is consistent with the points out-of almost every other condition attorney general focused on education loan maintenance practices
State legislators are not the only public officeholders when you look at the Massachusetts concentrated toward student loan servicers. Massachusetts Lawyer General Healey could have been active in targeting servicers once the the woman election within the 2014. Among other things, she registered on the funds with ACS Degree Services for abusive education loan collection practices, significantly less than and this ACS accessible to spend a good $dos.4 million okay and you may opinion certain borrowers’ 30 day title loans in Celina income-depending plan apps. She also prosecuted Pennsylvania Degree Recommendations Agencies (“PHEAA”) when you look at the Suffolk Premium Court to have violations off Massachusetts Chapter 93A and you will brand new federal User Economic Protection Act, which case remains pending following the court’s denial away from PHEAA’s actions so you’re able to discount.
Alone, Attorneys General Healey has inserted in student loan repair lobbying jobs. She added a team of county attorney standard inside the criticizing Assistant off Degree Betsy DeVos’s revocation regarding education loan repair reforms. She along with entered a good coalition away from lawyer standard to name into Secretary DeVos “to refute a continuous promotion from the student loan servicers … to help you secure disease fighting capability … off condition-level oversight,” and one set of attorney standard during the lobbying Congress never to admission amendments toward Advanced schooling Act (“HEA”) who does likewise immunize student loan servicers. These types of jobs appear to have been at the very least a little effective. Instance, when you’re Assistant DeVos granted a memorandum arguing you to state control out-of student loan servicers is preempted of the federal laws, the newest modification on the HEA never ever turned rules.
- In case your SL Costs off Liberties try introduced, servicers would be susceptible to increased scrutiny inside the Massachusetts. On top of other things, nonbank servicers might have to getting subscribed, and all sorts of servicers will need to be sure compliance which have the newest guidelines progressing.
- The new SL Expenses regarding Legal rights is enacted within this a somewhat short period of time, also it would-be wise to have servicers to start writing contingency preparations today. Loan providers and other world participants might also want to keep apprised of advancements, as their connection with servicers can be inspired.
- We and additionally expect one Attorney Standard Healey continues to prosecute enforcement tips facing education loan servicers and certainly will attempt to enforce monetary or other penalties.
