In 2016, California enacted AB 2251 The Student Loan Servicing Act. AB 2251 created a regulatory licensing program within the Department of Financial Protection and Innovation (DFPI) and gave the DFPI the authority to oversee companies that service student loans in California. Although AB 2251 created some protections for borrowers, it did not provide the kind of financial protections needed to deal with the student debt crisis. With more than 3.8 million borrowers in California owing nearly $125 billion in student debt, it was imperative that California create additional protections for student borrowers.
In 2019, the Student Borrower Bill of Rights (SBOR) was introduced by Assemblyman Mark Stone as number AB 376 and was sponsored by the Student Borrower Protection Center, a nonprofit advocacy group. lucrative. AB 376 was backed by a coalition of 70 civil rights, higher education and consumer organizations. The bill was signed into law by Governor Newsom in 2020 and took effect on 01/01/2021.
Lack of protection for student borrowers
Prior to SBOR, CA borrowers enjoyed minimal federal protections and unlike mortgages or credit cards, there was no industry-wide framework at the federal level to regulate the student loan industry. As a result, student borrowers had no collateral to help them get out of debt. In addition, borrowers faced a terribly complex and confusing repayment system and a student loan market plagued by predatory practices. Service agents have been found to routinely lose documents, misapply payments, fail to respond, give inaccurate information, and even direct borrowers to repayment options that increase the overall cost of their loans to the point of leading them to fall behind on payments and slide into default. These unfair and deceptive practices have made student loan debt unaffordable and unmanageable for borrowers.
Charter of rights of the student borrower
The SBOR gives the DFPI the authority to regulate student loan servicers that were previously exempt from California’s student loan servicer licensing law, including deposit-taking institutions (other than federally chartered credit unions), private post-secondary institutions and, to some extent, FFELP guarantee agencies.
Some of the specific requirements include:
- Prohibits unfair or deceptive practices towards student borrowers.
- Establishes special protection for military borrowers, government-employed borrowers, elderly borrowers, and disabled borrowers.
- Repairers must provide accurate information on reimbursement options. Borrowers should be given accurate information about income-based repayment plans or other flexible repayment options to avoid defaults.
- Repairers and lenders cannot omit important information. They should present all important information about a loan and not misrepresent the information in any way.
- Repairers cannot take advantage of misunderstandings. They are required to work in the best interests of the borrowers, even if that means missing out on profits.
- Repairers must process payments and other documents in a timely manner. Payments received before midnight on the day of payment should be marked as punctual.
- Repairers and lenders need to minimize their costs. Charges are capped at six percent of the overdue amount.
- Managers must apply payments correctly and in a way that minimizes fees, charges and interest payments. Overpayments should be posted and handled in the best financial interest of the borrower.
- Administrative officers must respond to disputes and other requests for information from borrowers, either orally or in writing. Repairer must respond to a Qualified Written Request (QWR) within 30 business days
- Service agents need to improve their record keeping and keep their records up to date so that borrowers can manage their payments appropriately
- If a student loan is transferred, the servicer must notify the borrower of the new servicer 15 days before the borrower is required to send payment.
- A borrower has the right to take legal action against their agent if they do not follow these laws. This is called a “private right of action” and allows borrowers to collect damages and restitution if their rights have been violated.
- Creation of a Student Loan Services Ombudsman to represent the interests of student borrowers.
Why is SBOR important?
Student loan debt is a national crisis. Borrowers report that the burden of student debt affects every aspect of their life, from buying a home to choosing a career, from starting a family to saving for retirement. Borrower protection not only benefits individual borrowers, but also local economies. Keeping more income in the pockets of these consumers will increase their spending on goods and services, which will create jobs and benefit the economy.
California is the first state in the nation to establish a strong set of standards that promote financial security and economic justice for California borrowers. By establishing SBOR, California has ensured that millions of borrowers have the consumer rights and protections they deserve.
Our Role and the Bill of Rights for Student Borrowers
Within the DFPI, there is a legal and enforcement unit that monitors student loan servicers and takes legal action if necessary. A supervisory unit that reviews and licenses private student loan servicers. And a Consumer Services Office (CSO) where student borrowers can file complaints if they are having trouble with their student loan agent, encountering illegal activity, or experiencing fraud or fraud. scams. We focus more on student borrowers and have engaged in multiple activities to oversee the student loan industry and protect student borrowers.
In 2020, the Student Loan Services Ombudsman position was filled in accordance with SBOR requirements. The Ombudsman works with other divisions of the DFPI to assess challenges faced by student borrowers, monitors the development of federal and state laws, rules, regulations, and policies relating to student borrowers in our state, and partners with d other agencies to reach out to student borrowers. The Ombudsman responds directly to complaints from student borrowers and works directly with student borrowers.
For more information, visit https://dfpi.ca.gov/student-loans-borrower-resources.