Massachusetts Passes and Implements New Student Loan Servicing Act | Jones day
The situation: Massachusetts recently enacted a Student Loan Borrower Bill of Rights (“SL Bill of Rights”), which became effective July 1, 2021, and the Massachusetts Division of Banks (“DOB”) also has implementing rules for the SL Bill issue of rights.
The result: The SL Bill of Rights introduces a new regulatory landscape for service providers in Massachusetts. Any service provider serving a student loan from a Massachusetts borrower must adhere to the service standards set forth therein and in its associated regulations. In addition, non-bank service providers should be aware that they now generally have to apply for a supervisory license.
Looking ahead: Servicers should take appropriate action to ensure compliance with the SL of Bill Rights and related regulations. Service providers should also be aware that existing laws and regulations may be legally challenged in the future and should monitor related developments.
The Massachusetts Student Loan Borrower’s Bill of Rights
the SL Bill of Rights came into effect on July 1, 2021, and the birthplace has issued its implementing regulations Regulations on the same day. Building on and codifying previous legislative proposals previously discussed in a 2019 Jones Day comment, the SL Bill of Rights provides a framework for the licensing and regulation of student loan service entities with which the borrower or co-signer is a Massachusetts resident.
According to the licensing component of the law, banks, credit unions and wholly-owned subsidiaries as well as universities are exempt from issuing a license. However, all other servicers must apply for a servicer license from the DOB, and there are currently two types of licenses: (i) an “Automatic Federal Student Loan Servicer License”; and (ii) a Student Loan Servicer License. The automatic federal license is irrevocable and is automatically granted to all applicants who exclusively service federal loans. The standard servicer license is intended for applicants who only service private student loans or both government and private student loans.
As for regulated behavior, the SL Bill of Rights prohibits all service providers from engaging in unfair or illegal practices. The implementing rules contain a general prohibition of “unfair, fraudulent or unreasonable” practices and a list of specific conduct that violates the standards set out in the regulations. Infringing Conduct includes: assigning partial payments in a manner that maximizes late payment fees; misrepresentation of the availability of repayment options to a borrower; Steering borrowers into forbearance without disclosing all other available repayment options; Failure to provide borrowers with information to report or confirm changes in account status; and knowingly or willfully fail to respond in a timely manner to complaints from borrowers.
Violation of the SL Bill of Rights will be considered a violation of Massachusetts consumer protection laws, and the Massachusetts Attorney General may have separate claims against service providers for violating those laws. The DOB, meanwhile, is responsible for the administrative enforcement of the SL Bill of Rights and can conduct investigations and investigations of all servicers servicing loans in Massachusetts, including those who are exempt from licensing. A violation of service standards in the SL Bill of Rights can result in the DOB imposing fines of up to USD 50,000 per violation and withdrawing a service license from licensed servicers (other than those with automatic federal licenses). The date of birth can also refer potential violations to the Massachusetts Attorney General.
The SL Bill of Rights also creates a “Student Loans Ombudsman“Within the Massachusetts Attorney General’s office. The Ombudsman helps resolve borrower complaints regarding service providers, provides borrowers with educational and informational materials, oversees student loan service providers, and prepares annual service issue reports.
The impact on servicers
Massachusetts servicers should coordinate with their compliance advisor to confirm that they have taken all necessary steps to meet the requirements of the SL Bill of Rights and the Regulations. Most importantly, non-exempt servicers should apply for a service license immediately if they have not already done so. For more information on licensing issues, please contact a FAQ issued by Massachusetts.
Servicers should also be aware that the SL Bill of Rights is subject to legal challenge. Over a dozen states have similar student loan servicing laws, and several are or have faced challenges. In fact, as of the date of this comment, portions of at least two of these laws have been repealed, in part for state preemptive reasons, with further litigation likely at both litigation and appeal levels. Similar issues can arise with respect to the SL Bill of Rights, and servicers should be aware of any legal challenges that could develop over the coming months and years.
Three important lessons
- The SL Bill of Rights and the associated implementing provisions came into force on July 1, 2021. The law and regulations are reshaping the legal framework for servicers in Massachusetts.
- Servicers who are subject to the SL Bill of Rights should apply for a service license from the DOB if necessary and immediately take steps to ensure compliance with the law and implementation regulations.
- Servicers should monitor future developments regarding the SL Bill of Rights, including potential legal challenges that may affect the application of the law.