HB2511 - 541R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 6, Arizona Revised Statutes, is amended by adding chapter 18, to read:

CHAPTER 18

STUDENT LOANS

ARTICLE 1. GENERAL PROVISIONS

START_STATUTE6-1801. Definitions

In this chapter, unless the context otherwise requires:

1. "Servicing" means any of the following:

(a) receiving scheduled periodic payments from a student loan borrower pursuant to the terms of a student education loan.

(b) applying the payments of principal and interest and other payments with respect to the amounts received from a student loan borrower pursuant to the terms of a student education loan.

2. "Student education loan" means a loan primarily for personal use to finance education or other school-related expenses.

3. "Student loan borrower" means either of the following:

(a) a resident of this state who has received or agreed to pay a student education loan.

(b) a person who shares responsibility with a resident described in subdivision (a) of this paragraph for repaying the student education loan.

4. "Student loan servicer" means a person that is responsible for the servicing of a student education loan to a student loan borrower.END_STATUTE

START_STATUTE6-1802. Student loan ombudsman; report

A. The superintendent shall designate a Student Loan Ombudsman within the Department to provide timely assistance to any student loan borrower.

B. The Student Loan Ombudsman, in consultation with the superintendent, shall:

1. Receive, review and attempt to resolve any complaints from student loan borrowers, including attempts to resolve the complaints in collaboration with institutions of higher education, student loan servicers and any other participants in student education loan lending, including each university under the jurisdiction of the Arizona board of regents and The Arizona Board of Regents.

2. Compile and analyze data on student loan borrower complaints.

3. Assist student loan borrowers to understand their rights and responsibilities under the terms of student education loans.

4. Provide information to the public, agencies, legislators and others regarding the problems and concerns of student loan borrowers and make recommendations for resolving those problems and concerns.

5. Analyze and monitor the development and implementation of federal, state and local laws and policies relating to student loan borrowers and recommend any changes the Student Loan Ombudsman deems necessary.

6. Review the complete student education loan history for a student loan borrower who has provided written consent for the review.

7. Disseminate information relating to the availability of the Student Loan Ombudsman to assist student loan borrowers and potential student loan borrowers, as well as public institutions of higher education, student loan servicers and any other participant in student education loan lending, with any student education loan servicing concerns.

8. Take any other actions necessary to fulfill the duties of the Student Loan Ombudsman as described in this section.

C. On or before October 1, 2022, the Student Loan Ombudsman, in consultation with the superintendent, shall establish and maintain a student loan borrower education course that includes educational presentations and materials relating to student education loans. The program shall include key loan terms, documentation requirements, monthly payment obligations, income-based repayment options, loan forgiveness and disclosure requirements.

D. On or before January 1, 2022, and annually thereafter, the superintendent shall submit a report to the governor, the president of the senate and the speaker of the House of representatives and shall provide a copy of this report to the secretary of state. The superintendent shall report on:

1. The effectiveness of the implementation of this section.

2. The overall effectiveness of the Student Loan Ombudsman position.

3. additional steps that need to be taken for the Department to gain regulatory control over the licensing and enforcement of student loan servicers.END_STATUTE

START_STATUTE6-1803. Licensure required; exceptions; applications; background checks; fees; renewals; abandoned application

A. A person may not act as a student loan servicer, directly or indirectly, without first obtaining a license from the superintendent under this section, except that the following persons are exempt from licensure:

1. A bank, out-of-state bank, in‑state credit union, federal credit union or out-of-state credit union.

2. A wholly owned subsidiary of a bank or credit union described in paragraph 1 of this subsection.

3. An operating subsidiary where each owner of the operating subsidiary is wholly owned by the same bank or credit union.

B. A person seeking to act within this state as a student loan servicer shall make a written application to the superintendent for an initial license in a form prescribed by the superintendent. The application shall be accompanied by:

1. A financial statement prepared by a certified public accountant or a public accountant, the accuracy of which is sworn to under oath before a notary public by the proprietor, a general partner or a corporate officer or a member duly authorized to execute the documents.

2. The history of criminal convictions of the applicant, partners, members, officers, directors or principal employees and sufficient information relating to the history of criminal convictions of the applicant, partners, members, officers, directors or principal employees as the superintendent deems necessary.

3. A nonrefundable license fee of $1,000.

4. A nonrefundable investigation fee of $800.

C. The superintendent may require the applicant and each partner, member, officer, director and principal employee of the applicant to submit a full set of fingerprints to superintendent for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and public law 92-544. The department of public safety may exchange this fingerprint data with the federal bureau of investigation.

D. on the filing of an application for an initial license and the payment of the license and investigation fees, the superintendent shall investigate the financial condition and responsibility, financial and business experience, character and general fitness of the applicant. The superintendent may issue a student loan servicer license if the superintendent finds that:

1. The applicant's financial condition is sound.

2. The applicant's business will be conducted honestly, fairly, equitably, carefully and efficiently within the purposes of this chapter and in a manner commanding the confidence and trust of the community.

3. If the applicant is:

(a) an individual, the individual is properly qualified and of good character.

(b) a partnership, each partner is properly qualified and of good character.

(c) a corporation or association, the president, chairperson of the executive committee, senior officer responsible for the corporation's or association's business and chief financial officer or any other person who performs similar functions as determined by the superintendent, each director, each trustee and each shareholder owning ten percent or more of each class of the securities of the corporation or association is properly qualified and of good character.

(d) if the applicant is a limited liability company, each member is properly qualified and of good character.

4. The applicant has paid the required investigation fee and license fee.

5. The applicant has met any other similar requirements as determined by the superintendent.

6. A person on behalf of the applicant has not knowingly made an incorrect statement of a material fact in the application or in any report or statement made pursuant to this chapter.

7. A person on behalf of the applicant has not knowingly omitted to state a material fact necessary to give the superintendent any information lawfully required by the superintendent.

E. A license issued pursuant to this section expires at the close of business on September 30 of the odd-numbered year following its issuance, unless the license is renewed or earlier surrendered, suspended or revoked. Not later than fifteen days after a licensee ceases to engage in the business of student education loan servicing in this state for any reason, including a business decision to terminate operations in this state, license revocation, bankruptcy or voluntary dissolution, the licensee shall provide written notice of surrender to the superintendent and shall surrender to the superintendent its license for each location in which the licensee has ceased to engage in such business. The written notice of surrender shall identify the location where the records of the licensee will be stored and the name, address and telephone number of an individual authorized to provide access to the records. The surrender of a license does not reduce or eliminate the licensee's civil or criminal liability arising from acts or omissions occurring before the surrender of the license, including any administrative actions by the superintendent to revoke or suspend a license, assess a civil penalty, order restitution or exercise any other authority provided to the superintendent.

F. A licensee may renew a license for twenty-four months by filing an application containing all required documents as provided in this section and a nonrefundable renewal fee of $1,000. A licensee shall file a renewal application with the superintendent on or before September 1 of the year in which the license expires. A licensee that files a renewal application after September 1 shall pay a $100 late fee. If a licensee files an application for a license renewal with the superintendent on or before the date that the license expires, the license sought to be renewed is valid until the superintendent renews the license or until the superintendent has notified the licensee in writing of the superintendent's refusal to renew the license with the grounds on which the refusal is based. The superintendent may refuse to renew a license on any ground on which the superintendent might refuse to issue an initial license.

G. The applicant or licensee shall notify the superintendent in writing of any change in the information provided in its initial application for a license or its most recent renewal application for a license not later than ten business days after the occurrence of the event that results in the information becoming inaccurate.

H. A student loan servicer may act only under the name and at the place of business that is specified on the license. A licensee shall provide written notice to the superintendent before changing the location of the licensee's place of business. A licensee may not maintain more than one place of business under the same license but the superintendent may issue more than one license to the same licensee on compliance with this section. A license is not transferable or assignable.

I. The superintendent may deem an application for a license abandoned if the applicant fails to respond to any request for information required under this section or any rules adopted pursuant to this chapter. The superintendent shall notify the applicant in writing that if the applicant fails to submit such information not later than sixty days after the date on which the request for information was made, the application shall be deemed abandoned. If the applicant abandons an application pursuant to this subsection, the superintendent may not refund any application fee the applicant paid. Abandonment of an application pursuant to this subsection does not preclude the applicant from submitting a new application for a license.END_STATUTE

START_STATUTE6-1804. Student loan servicer requirements; prohibitions

A. Each student loan servicer shall maintain adequate records of each student education loan transaction for not less than two years following the final payment on the student education loan or the assignment of the student education loan, whichever occurs first, or a longer period as may be required by any other law.

B. If requested by the superintendent, each student loan servicer shall make records available or send records to the superintendent by certified mail or by any express delivery carrier that provides a dated delivery receipt, not later than five business days after the superintendent requests the records. on request, the superintendent may grant a licensee additional time to make records available or send the records to the superintendent.

C. A student loan servicer may not:

1. Directly or indirectly employ any scheme, device or artifice to defraud or mislead student loan borrowers.

2. Engage in any unfair or deceptive practice toward any person or misrepresent or omit any material information in connection with the servicing of a student education loan, including misrepresenting the amount, nature or terms of any fee or payment due or claimed to be due on a student education loan, the terms and conditions of the loan agreement or the borrower's obligations under the loan.

3. Obtain property by fraud or misrepresentation.

4. Knowingly misapply or recklessly apply student education loan payments to the outstanding balance of a student education loan.

5. Knowingly or recklessly provide inaccurate information to a credit bureau resulting in harm to a borrower's credit.

6. Fail to report both the favorable and unfavorable payment history of the borrower to a nationally recognized consumer credit bureau at least annually if the loan servicer regularly reports information to a credit bureau.

7. Refuse to communicate with an authorized representative of the borrower who provides a written authorization signed by the borrower, if the servicer adopts procedures reasonably related to verifying that the representative is authorized to act on behalf of the borrower.

8. Negligently make any false statement or knowingly and wilfully make any omission of a material fact in connection with any information or reports filed with a governmental agency or in connection with any investigation conducted by the superintendent or another governmental agency. END_STATUTE

START_STATUTE6-1805. Investigations and examinations; revocation; suspension; federal law; rulemaking

A. In addition to any authority provided by law, the superintendent may conduct investigations and examinations as follows:

1. For purposes of initial licensing, license renewal, license suspension, license revocation or termination, or general or specific inquiry or investigation to determine compliance with this chapter, the superintendent may access, receive and use any books, accounts, records, files, documents, information or evidence including:

(a) criminal, civil and administrative history information.

(b) personal history and experience information, including independent credit reports obtained from a consumer reporting agency described in the Fair Credit Reporting Act (15 United States Code section 1681a(p)).

(c) any other documents, information or evidence that the superintendent deems relevant to the inquiry or investigation regardless of the location, possession, control or custody of the documents, information or evidence.

2. For the purposes of investigating violations or complaints arising under this chapter or for the purposes of examination, the superintendent may review, investigate or examine any student loan servicer as necessary in order to carry out the purposes of this chapter. The superintendent may direct, subpoena or order the attendance of and examine under oath persons whose testimony may be required about the student education loan or the business or subject matter of any examination or investigation and may direct, subpoena or order the persons to produce books, accounts, records, files and any other documents the superintendent deems relevant to the inquiry.

3. In an examination or investigation authorized by this section, the superintendent may control access to any documents and records of a student loan servicer or person under examination or investigation. The superintendent may take possession of the documents and records or place a person in exclusive charge of the documents and records in the place where the documents and records are usually kept. During the period of control, a person may not remove or attempt to remove any of the documents and records except pursuant to a court order or with the superintendent's consent. Unless the superintendent has reasonable grounds to believe the documents or records are at risk of being altered or destroyed, the student loan servicer or the owner of the documents and records may access the documents or records as necessary to conduct the servicer's or owner's ordinary business affairs.

B. To carry out the purposes of this section, the superintendent may:

1. Retain attorneys, accountants or other professionals and specialists as examiners, auditors or investigators to conduct or assist in the conduct of examinations or investigations.

2. Enter into agreements or relationships with other government officials or regulatory associations to improve efficiencies and reduce regulatory burden by sharing resources, standardized or uniform methods or procedures and documents, records, information or evidence obtained under this section.

3. Use, hire, contract or employ public or privately available analytical systems, methods or software to examine or investigate the student loan servicer.

4. Accept and rely on examination or investigation reports made by other government officials.

5. Accept audit reports made by an independent certified public accountant for the student loan servicer in the course of that part of the examination covering the same general subject matter as the audit and incorporate the audit report in the report of examination, report of investigation or other writing of the superintendent.

C. A student loan servicer or person subject to investigation or examination under this section may not knowingly withhold, abstract, remove, mutilate, destroy or secrete any books, records, computer records or other information.

D. The superintendent may suspend, revoke or refuse to renew any license issued under this chapter or take any other action authorized by this title if a licensee violates this chapter or if any fact or condition exists that, if it had existed at the time of the original application for the license, would be cause to deny the license. The superintendent may not abate the license fee if the license is surrendered, revoked or suspended before it expires.

E. A student loan servicer shall comply with all applicable federal laws relating to student education loan servicing, including the Truth in Lending Act (15 United States Code Sections 1601 through 1667f). In addition to any other remedies provided by law, a violation of such federal law is a violation of this chapter.

F. The superintendent shall adopt rules to implement this chapter.END_STATUTE

Sec. 2. Appropriation; department of financial institutions; exemption

A. The sum of $500,000 is appropriated from the state general fund in fiscal year 2019-2020 to the department of financial institutions for the implementation of this act.

B. The appropriation made in subsection A of this section is exempt from the provisions of section 35‑190, Arizona Revised Statutes, relating to lapsing of appropriations.

Sec. 3. Requirements for enactment; two-thirds vote

Pursuant to article IX, section 22, Constitution of Arizona, this act is effective only on the affirmative vote of at least two-thirds of the members of each house of the legislature and is effective immediately on the signature of the governor or, if the governor vetoes this act, on the subsequent affirmative vote of at least three-fourths of the members of each house of the legislature.