NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A7582A
SPONSOR: Zebrowski (MS) TITLE OF BILL: An act to amend the banking law, in relation to
requiring the licensure of student loan servicers
PURPOSE OR GENERAL IDEA OF BILL:
This bill would require student loan servicers to obtain a license from
the department of financial services.
SUMMARY OF PROVISIONS:
Section one of the bill amends the banking law by adding a new article
14-A in relation to requiring student loan servicers to obtain a
license. The bill requires servicers to apply to the department of
financial services in order to engage in the business of servicing
student loans. The bill prohibits certain practices by servicers that
could defraud or mislead borrowers and empowers the department to revoke
a license if, after a hearing, is found to have violated the provisions
of the law.
Section two of the bill amends section 36 of the banking law as it
relates to adding student loan servicers to the list of entities that
the superintendent may examine.
Section three of the bill amends section 39 of the banking law as it
relates to adding student loan servicers to the list of entities subject
to an order of the superintendent.
Section four of the bill amends section 44 of the banking law as it
relates to adding student loan servicers to the list of entities that
are subject to penalties by the superintendent.
Section five of the bill relates to the effective date.
DIFFERENCE BETWEEN ORIGINAL AND AMENDED VERSION (IF APPLICABLE):
The amendments clarified that exempt organizations are not subject to
the law.
JUSTIFICATION:
According to a 2016 report by the Comptroller, New York student loan
debt is over $82 billion and growing exponentially. Over the past decade
student loan debt in New York has grown by 112%; creating financial
challenges for many New Yorkers.
There are several large non-bank entities that service federal student
loans that are responsible for collecting payments, offering support
services, and consulting on repayment plans. These entities should be
licensed and regulated to ensure that they are not engaging in deceptive
consumer practices such as misleading the borrower, misapplying
payments, or submitting false information to credit agencies.
Recently, the Consumer Financial Protection Bureau (CFPB) filed a
lawsuit against one of the largest student loan servicers in the coun-
try. The lawsuit alleged that the servicer committed several violations
against borrowers including misleading consumers resulting in higher
repayment amounts. In the response to the CFPB lawsuit, the servicer
stated that as the loan servicers, there is "no expectation to act in
the interest of the consumer." They clarified that they only have a duty
to act in the interest of the lender. This is a stark example of why we
need oversight over entities that are servicing student loans. They
should act in a fair and transparent manner with borrowers.
PRIOR LEGISLATIVE HISTORY:
New bill.
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
Minimal.
EFFECTIVE DATE:
This act shall take effect on the one hundredth eightieth day after it
shall have become law.
