HB2505 - 542R

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 LOAN SERVICER LICENSING

ARTICLE 1. GENERAL PROVISIONS

START_STATUTE6-1801. Definitions

In this chapter, unless the context otherwise requires:

1. "Servicing" means all of the following:

(a) Receiving scheduled periodic payments from a borrower pursuant to the terms of a loan.

(b) Applying the payments received pursuant to subdivision (a) of this paragraph pursuant to the loan terms.

2. "Student education loan" means a loan, notwithstanding an election of law or designation of status in a contract, used mainly for financing education or other school-related expenses.

3. "Student loan borrower" means either:

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

(b) A person who shares repayment responsibility with a resident described in subdivision (a) of this paragraph.

4. "Student loan servicer":

(a) Means any person, regardless of location, responsible for servicing a student education loan to a student loan borrower.

(b) includes trust entities performing or receiving the benefit of student loan servicing and debt collection activities in this state.END_STATUTE

START_STATUTE6-1802. Student loan ombudsman

The position of student loan ombudsman is established in the department. The ombudsman, in consultation with the superintendent, must:

1. Receive and review complaints from student loan borrowers.

2. Attempt to resolve the complaints, including collaborating with institutions of higher education, student loan servicers and any other participants in student education loan lending.

3. Compile and analyze complaint data.

4. Help student loan borrowers understand their rights and responsibilities under the terms of student education loans.

5. Provide information to the public, agencies, legislators and others about student loan borrowers' problems and concerns and make recommendations for resolutions.

6. Analyze and monitor the development and implementation of federal, state and local laws on student loan borrowers and recommend necessary changes.

7. Review the loan histories for student loan borrowers who give written consent.

8. Disseminate information about the ombudsman's availability to help those with servicing concerns, such as student loan borrowers, potential student loan borrowers, state higher education institutions and student loan servicers.

9. Take any other actions necessary to fulfill the ombudsman's duties.

10. Establish a student loan borrower education course on or before October 1, 2020. The course must:

(a) Include educational presentations and material about student education loans.

(b) Cover key loan terms, documentation requirements, monthly payment obligations, income-based repayment options, loan forgiveness and disclosure requirements.END_STATUTE

START_STATUTE6-1803. Student loan servicers; licenses; exceptions; applications; denial

A. A person acting as a student loan servicer must obtain a license from the superintendent.

B. The following are exempt from this chapter:

1. A bank or credit union.

2. A wholly owned subsidiary of a bank or credit union.

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

C. An applicant for a student loan servicer license must file a written application, as prescribed by the superintendent, along with all of the following:

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

2. A nonrefundable investigation fee of $800.

3. A notarized financial statement prepared by a certified public accountant or public accountant, the accuracy of which is attested to by someone authorized to execute the document.

4. Any history of criminal convictions of the applicant and each partner, member, officer, director and principal employee of the applicant.

D. The superintendent may conduct a state and federal criminal history records check of the applicant and each partner, member, officer, director and principal employee of the applicant. On request by the superintendent, the applicant or the partner, member, officer, director or principal employee of the applicant shall submit a full set of fingerprints to the department of insurance and financial institutions 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.

E. The superintendent, on receipt of the application and fees, must also investigate the applicant's financial condition and responsibility, financial and business experience and character and general fitness.

F. The superintendent may deny a student loan servicer license if the superintendent determines any of the following:

1. The applicant's financial condition is not sound.

2. The business will not be conducted honestly, fairly, equitably, carefully, efficiently, consistent with the purposes of this chapter and in a manner commanding the community's confidence and trust.

3. The applicant and the applicant's control persons are not qualified and not of good character.

4. Someone on behalf of the applicant has knowingly made a material misstatement or omission in the application.

5. The applicant does not meet other requirements as determined by the superintendent.END_STATUTE

START_STATUTE6-1804. License expiration; surrender; renewal; suspension; information update; abandonment

A. A student loan servicer license expires at the close of business on September 30 of the odd-numbered year immediately following its issuance, unless it is renewed, surrendered, suspended or revoked.

B. Within fifteen days after a licensee stops engaging in student loan servicing at a location in this state, the licensee must surrender its license for that location and notify the superintendent in writing. Pursuant to section 6-1806, the written notice shall identify the location where the licensee's records will be stored and the name, address and telephone number of an individual authorized to provide access to the records. A license surrender does not reduce or eliminate the licensee's civil or criminal liability arising from acts or omissions occurring before the surrender.

C. A student loan servicer license may be renewed once every two years. The renewal application must be filed by September 1 of the year in which the license expires and must be accompanied by all documents and fees required for the initial licensure. Any renewal application filed after that date must include a late fee of $100.

D. If a licensee files a license renewal application on or before the license expiration date, the license remains effective until the superintendent issues the renewal or notifies the licensee in writing of the superintendent's refusal to renew the license, including the grounds for the refusal to renew. Grounds for refusal to renew are the same as grounds to deny an initial application pursuant to section 6‑1803.

E. The superintendent must automatically suspend the initial or renewal license if payment of the required fees is returned or not accepted by the financial institution where the payment is presented. The superintendent must give the licensee notice of the automatic suspension, pending proceedings for revocation or refusal to renew, and an opportunity for a hearing.

F. An applicant or licensee must notify the superintendent in writing of any change in the information provided in its initial license application or most recent license renewal application, within ten business days after the information changes.

G. The superintendent may consider an application abandoned if the applicant fails to respond to any request for information. The superintendent must notify the applicant in writing that if the information is not submitted within sixty days after the request date, the application will be deemed abandoned. Application fees for abandoned applications are not refundable. The applicant may submit a new application with the required filing fees. END_STATUTE

START_STATUTE6-1805. Name and location

A student loan servicer licensee must use the name and business address stated in its license. The licensee must maintain one place of business under the license and notify the superintendent in writing of any location change. The superintendent may issue more than one license to a licensee. A license is not transferable or assignable.END_STATUTE

START_STATUTE6-1806. Record retention

A. Except as prescribed in federal law, a federal student education loan agreement or a contract between the federal government and the student loan servicer, a student loan servicer shall preserve records of each student education loan and all communications with student loan borrowers for at least two years after the final payment on a student education loan or the sale, assignment or other transfer of the servicing of a student education loan, whichever occurs first, or a longer period as may be required by any other law.

B. If requested by the superintendent, a student loan servicer must make the records available or send the records to the superintendent within five business days after the request. The superintendent may allow additional time if requested. The records must be sent by certified mail, return receipt requested or any express delivery carrier that provides a dated delivery receipt.END_STATUTE

START_STATUTE6-1807. Federal law compliance

A student loan servicer must comply with all applicable federal laws, including the Truth in Lending Act as defined in section 6‑601. A violation of federal law is a violation of this section. The superintendent may take enforcement action against any violator, in addition to any other legal remedies.END_STATUTE

START_STATUTE6-1808. Prohibited practices

A student loan servicer may not do any of the following:

1. Employ, directly or indirectly, 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 any fees, payments due, loan terms or student loan borrower obligations.

3. Obtain property by fraud or misrepresentation.

4. Misapply or recklessly apply student education loan payments to a loan's outstanding balance.

5. Provide inaccurate information to a credit bureau, causing harm to a student loan borrower's creditworthiness.

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

7. Refuse to communicate with an authorized representative of the student loan borrower who provides a written authorization signed by the student loan borrower.

8. Make any false statement or omit a material fact in connection with any information or reports filed with a government agency or in connection with any investigation conducted by the superintendent or another government agency.

9. Communicate with consumers in any manner designed to harass or intimidate.END_STATUTE

START_STATUTE6-1809. Student loan servicer responsibilities

Except as otherwise prescribed in federal law, federal student education loan agreements or a contract between the federal government and the student loan servicer:

1. If a student loan servicer regularly reports information to a consumer reporting agency, the student loan servicer shall accurately report a student loan borrower's payment performance to at least one consumer reporting agency that compiles and maintains files on consumers on a nationwide basis as defined in 15 United States Code section 1681a(p), on acceptance as a data furnisher by that consumer reporting agency.

2. A student loan servicer shall inquire of a student loan borrower how to apply the borrower's nonconforming payment. A student loan borrower's direction on how to apply a nonconforming payment remains in effect for any future nonconforming payment during the term of a student education loan until the student loan borrower provides different directions. For purposes of this paragraph, "nonconforming payment" means a payment that is either more or less than the student loan borrower's required student loan payment.

3. If the sale, assignment or other transfer of the servicing of a student education loan results in a change in the identity of the person to whom the student loan borrower is required to send subsequent payments or direct any communications concerning the student education loan, a student loan servicer shall within forty-five days after the sale, assignment or other transfer, transfer all information regarding a student loan borrower, a student loan borrower's account and a student loan borrower's student education loan, including the student loan borrower's repayment status and any student loan borrower benefits associated with the student loan borrower's student education loan, to the new student loan servicer who is servicing the student loan borrower's student education loan.

4. A student loan servicer shall adopt policies to verify that the student loan servicer has received all information regarding a student loan borrower, a student loan borrower's account and a borrower's student loan, including the student loan borrower's repayment status and any student loan borrower benefits associated with the borrower's student education loan when the student loan servicer obtains the right to service a student education loan.

5. If a student loan servicer sells, assigns or otherwise transfers the servicing of a student education loan to a new student loan servicer, the sale, assignment or other transfer shall be completed at least seven days before the student loan borrower's next payment is due.

6. A student loan servicer that sells, assigns or otherwise transfers the servicing of a student education loan shall require as a condition of the sale, assignment or other transfer that the new student loan servicer honor all student loan borrower benefits originally represented as being available to a student loan borrower during the repayment of the student education loan and the possibility of those benefits, including any benefits that were represented as being available but for which the student loan borrower has not yet qualified.

7. A student loan servicer that obtains the right to service a student education loan shall honor all student loan borrower benefits originally represented as being available to a borrower during the repayment of the student loan and the possibility of those benefits, including any benefits that were represented as being available but for which the student loan borrower has not yet qualified.

8. A student loan servicer shall respond within thirty days after receipt to a written inquiry from a student loan borrower or a student loan borrower's authorized representative.END_STATUTE

START_STATUTE6-1810. Oversight and authority

A. In considering and investigating an application under this chapter, the department may use all appropriate means of investigation and discovery that are available pursuant to this title.

B. The superintendent shall control access to any documents and records of the student loan servicer or person under examination or investigation and take possession of the documents and records or place a person in exclusive charge of them in the place where the documents and records are usually kept. The removal or attempted removal of any of the documents and records during the control period is prohibited, except by court order or with the superintendent's consent. The student loan servicer or owner of the documents and records must have access to them as needed to conduct its ordinary business, unless the superintendent has reason to believe there is a risk that the documents or records will be altered or destroyed to conceal a violation.

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

START_STATUTE6-1811. Notice; hearing; violation; penalties

A. After notice and an opportunity for a hearing, the superintendent shall suspend, revoke or refuse to renew any student loan servicer license, or take any other action, for any violation or any reason that would be sufficient grounds for denial of a license application. If the license is surrendered, revoked or suspended before it expires, the superintendent shall not refund any portion of the license fee.

B. The superintendent may take any action allowed under this title if the superintendent determines that a person violated, is violating or is about to violate this chapter or a student loan servicer or any owner, director, officer, member, partner, shareholder, trustee, employee or agent of the licensee has committed fraud, engaged in dishonest activities or made any misrepresentation.END_STATUTE

START_STATUTE6-1812. Violation; unlawful practice; civil penalty

A. An act or practice in violation of this chapter is an unlawful practice under section 44-1522 and subject to enforcement through private action and prosecution by the attorney general. The attorney general may investigate and take appropriate action as prescribed by Title 44, chapter 10, article 7.

B. A person who violates this chapter is subject to a civil penalty up to $100,000 per violation and an order to make restitution.END_STATUTE

START_STATUTE6-1813. Noncompliance; damages; attorney fees

A. A student loan servicer that wilfully fails to comply with this chapter with respect to any consumer is liable to that consumer in an amount equal to the sum of all of the following:

1. Any actual damages sustained by the consumer as a result of the failure.

2. A monetary award equal to three times the total amount collected from the consumer, as ordered by the superintendent.

3. An amount of punitive damages as determined by the court.

4. In the case of any successful action to enforce any liability under this section, the costs of the action together with reasonable attorney fees as determined by the court.

B. A student loan servicer that is negligent in failing to comply with any requirement imposed under this chapter with respect to any consumer is liable to that consumer in an amount equal to the sum of both of the following:

1. Any actual damages sustained by the consumer as a result of the failure.

2. In the case of a successful action to enforce any liability under this section, the cost of the action together with reasonable attorney fees as determined by the court.END_STATUTE

Sec. 2. 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.