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The situation: Massachusetts recently enacted a “Student Loan Borrowers Bill of Rights” (“SL Bill of Rights”) which came into effect on July 1, 2021, and the Massachusetts Division of Banking (“DOB”) also issued implementing regulations for Bill SL. Rights.
The result: The SL Bill of Rights introduces a new regulatory landscape for service providers in Massachusetts. Any service agent who administers a student loan from a Massachusetts borrower must adhere to the service standards set forth therein and associated regulations. In addition, non-bank service providers should be aware that they are now generally required to apply for a maintenance license.
Looking forward: Service agents should take appropriate steps to ensure compliance with Bill Rights’ SL and its associated regulations. Service agents should also be aware that there may be future legal challenges to existing law and regulations and should monitor related developments.
The Massachusetts Student Loan Borrowers Bill of Rights
The SL Bill of Rights entered into force on July 1, 2021 and the DOB published its regulations the same day. Build on and codify proposed legislation previously discussed at a Jones Day 2019 Remark, the SL Bill of Rights establishes a framework for the licensing and regulation of entities administering student loans for which the borrower or co-signer is a resident of Massachusetts.
Under the licensing component of the law, banks, credit unions, and wholly owned subsidiaries are exempt from licensing, as are institutions of higher education. However, all other repairers are required to apply for a repairer’s license from the DOB, and there are currently two types of licenses: (i) an “automatic federal student loan officer license”; and (ii) a “student loan manager license”. The automatic federal license is irrevocable and automatically granted to all applicants who only manage federal loans. The Standard Service Agent License is for applicants who only manage private student loans or federal and private student loans.
With respect to regulated conduct, the SL Bill of Rights prohibits all service providers from engaging in unfair or illegal practices. The implementing regulations contain a general prohibition of “unfair, deceptive or unreasonable” practices and an exhaustive list of specific conduct that violates the standards set out in the regulations. Abusive conduct includes: awarding partial payments so as to maximize late fees; distort the availability of repayment options to a borrower; forbear borrowers without disclosing all other available repayment options; not providing information to borrowers to notify or confirm changes in account status; and by knowingly or willfully failing to respond to borrower complaints in a timely manner.
A violation of the SL Bill of Rights is considered a violation of Massachusetts statutory consumer protection laws, and the Massachusetts Attorney General may bring separate actions against service providers for violation of those laws. The DOB, meanwhile, is responsible for the administrative enforcement of the SL Bill of Rights and may conduct investigations and reviews of all agents who handle loans in Massachusetts, including those who are exempt from the. license requirement. Violation of maintenance standards in the SL Bill of Rights can result in fines of up to $ 50,000 per violation and revocation of a maintenance license for authorized repairers (other than those with a federal license). Automatique). The DOB can also report potential violations to the Massachusetts attorney general’s office.
The SL Bill of Rights also creates a “student loan mediatorin the Massachusetts Attorney General’s Office. The Ombudsman assists in resolving borrower complaints about service providers, provides educational and informational material to borrowers, monitors student loan service providers, and publishes annual reports on management issues.
The impact on repairers
Massachusetts repairers should coordinate with their compliance advisors and confirm that they have taken all necessary steps to meet the requirements of the SL Bill of Rights and related regulations. More importantly, non-exempt repairers should immediately apply for a maintenance license, if they haven’t already done so. For more information on licensing issues, repairers can refer to a Faq issued by Massachusetts.
Service agents should also be aware that the SL Bill of Rights may be subject to legal challenges. More than a dozen states have passed similar laws on servicing student loans, and several are or have been the subject of challenges. Indeed, as of the date of this commentary, parts of at least two of these laws have been partially struck down on federal preemptive grounds, with additional litigation likely at the trial and appeal levels. Similar issues can arise with regards to the SL Bill of Rights, and service agents should monitor any legal challenges that may arise in the months and years to come.
Three key points to remember
- The SL Bill of Rights and associated implementing regulations came into effect on July 1, 2021. The law and regulations reshape the regulatory framework for service providers in Massachusetts.
- Service providers subject to the SL Bill of Rights should apply for a maintenance license from the DOB, if necessary, and take immediate action to ensure compliance with the law and applicable regulations.
- Duty officers should monitor future developments regarding the SL Bill of Rights, including any potential legal challenges that could impact law enforcement.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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