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  • Department of Education restores accreditor’s federal recognition pending review of its 2016 petition

    Federal Issues

    On April 3, Department of Education (Department) Secretary, Betsey DeVos restored the Accrediting Council for Independent Colleges and Schools’ (ACICS) status as a federally recognized accrediting agency, effective as of December 12, 2016. The order follows the U.S. District Court for the District of Columbia’s March 23, 2018 remand of the former Secretary’s December 2016 decision withdrawing recognition. The order states that while federal recognition is restored, the Department will review ACICS’ January 2016 petition to determine whether continued recognition is warranted. As previously covered by InfoBytes, a coalition of state Attorneys General urged the Department to reject ACICS’ application to regain recognition, citing to what the Attorneys General called “ACICS’ systemic accreditation failures.”

    Federal Issues Student Lending Department of Education State Attorney General

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  • Student loan servicer seeks declaratory and injunctive relief to resolve dispute concerning preemption of state law

    Courts

    On April 4, a Pennsylvania-based student loan servicer (servicer) that services federal student loans on behalf of the U.S. Department of Education (Department) filed a complaint in the U.S. District Court for the District of Columbia against the Connecticut Department of Banking and its banking commissioner (together, the Connecticut Defendants), and the Department, seeking a judicial determination that the federal Privacy Act of 1974 (Privacy Act) preempts Connecticut law requiring the servicer to disclose certain records containing confidential information about its student loan borrowers to the state, along with data related to borrower complaints, or risk revocation of its state servicer’s license. In addition, the servicer seeks injunctive relief against the Connecticut Defendants to prevent the enforcement of state law in contravention of the Privacy Act and revocation of the servicer’s license.

    In support of the injunctive relief sought, the servicer cites several irreparable harms, including (i) the potential termination of its federal loan servicing contract; (ii) the revocation of its license to service, which would adversely affect approximately 100,000 student borrowers in the state, and (iii) the potential impact on loan servicing arrangements that the servicer has with “dozens of private lenders doing business in Connecticut.”

    As previously covered in InfoBytes, on March 12 Department Secretary Betsy DeVos published an Interpretation that asserted the position that state “regulation of the servicing of Direct Loans” is preempted because it “impedes uniquely Federal interests,” and state regulation of the servicing of loan under the Federal Family Education Loan Program “is preempted to the extent that it undermines uniform administration of the program.” However, last month—as discussed in InfoBytes—a bipartisan coalition of 30 state Attorneys General released a letter urging Congress to reject Section 493E(d) of the Higher Education Act reauthorization—H.R. 4508, known as the “PROSPER Act”—which would prohibit states from “overseeing, licensing, or addressing certain state law violations by companies that originate, service, or collect on student loans.” The states expressed a concern that, if enacted, the law would preempt state consumer protection laws for student borrowers and constitute “an all-out assault on states’ rights and basic principles of federalism.”

    Courts Department of Education Student Lending State Issues Preemption Congress Federal Legislation

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  • Washington governor enacts bill to provide student loan debt relief

    Lending

    On March 22, the Washington governor signed HB 1169, which establishes the student opportunity, assistance, and relief act to address student loan debt. Among other things, HB 1169 (i) repeals certain statutes allowing the suspension of a professional license or certificate due to student loan default; (ii) changes the judgment interest rate for unpaid private student loan debt to two percentage points above the prime rate, unless the judgment interest rate is specified in the contract; (iii) defines “private student loan,” and outlines exclusions, such as “an extension of credit made under an open-end consumer credit plan, a reverse mortgage transaction, a residential mortgage transaction, or any other loan that is secured by real property or a dwelling”; and (iv) outlines provisions and exemptions for bank account and wage garnishment. The act takes effect June 7.

    As previously covered in InfoBytes, earlier in March the Washington governor established the “Washington student education loan bill of rights” to outline licensing requirements and responsibilities for student loan servicers.

    Lending State Issues State Legislation Student Lending Debt Relief

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  • Washington state enacts student education loan bill of rights, outlines servicer requirements

    Lending

    On March 15, the Washington governor signed Senate Bill 6029, which establishes the “Washington student education loan bill of rights” and outlines licensing requirements and responsibilities for student loan servicers. The act, among other things, requires that the council designate a “student loan advocate” whose responsibilities include providing timely assistance to borrowers, reviewing borrower complaints, referring servicing-related complaints to the state’s Department of Financial Institutions (DFI) or the Attorney General’s office, compiling and disseminating data regarding borrower complaints, and establishing a student education loan borrower education course by October 1, 2020. The act also requires that student loan servicers be licensed through the state (certain entities that are exempt from the licensing requirement must still comply with the act’s other requirements). Under the act, student loan servicers—in addition to complying with applicable federal program requirements—must also (i) provide information to borrowers concerning repayment options, account history, and assessed fees; (ii) notify borrowers when acquiring or transferring servicing rights; and (iii) provide disclosures concerning the possible effects of refinancing student loans. The act further provides that third-parties offering student education loan modification services may not charge or receive money “prior to full and complete performance of the [agreed upon] services,” may not charge fees that are in excess of what is customary or reasonable, and must immediately inform a borrower in writing if the owner or servicer of a loan requires additional documentation or if “modification, refinancing, consolidation, or change in repayment plans . . . is not possible.”

    Furthermore, the act exempts from the outlined requirements “any person doing business under, and as permitted by, any law of this state or of the United States relating to banks, savings banks, trust companies, savings and loan or building and loan associations, or credit unions.” 

    Lending Student Lending Licensing State Issues Servicer State Attorney General

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  • Bipartisan group of state Attorneys General denounce potential limitations on state oversight of student loan industry

    State Issues

    On March 15, a bipartisan group of 30 state Attorneys General released a letter urging Congress to reject Section 493E(d) of the Higher Education Act reauthorization – H.R. 4508, known as the “PROSPER Act” – which would prohibit states from “overseeing, licensing, or addressing certain state law violations by companies that originate, service, or collect on student loans.” Led by the New York and Colorado Attorneys General, the letter characterizes Section 493E(d) as an “an all-out assault on states’ rights and basic principles of federalism.” According to the letter, if enacted, parts of the student loan industry would be immunized from state-level enforcement, placing a larger consumer protection role on the Department of Education for which the agency is not equipped to handle. The Attorneys General assert that the states have the legal capacity and track record to enforce against abuses in the student loan market; citing to a statistic which estimates $1.38 trillion in student loan debt, the letter highlights previous state enforcement actions and emphasizes the need for states and the federal government to work together to protect U.S. borrowers.

    In addition to Section 493E(d) of the PROSPER Act, the Department of Education recently published an interpretation in the Federal Register which takes the position that state regulation of certain federal student loan programs is preempted by federal law, previously covered by InfoBytes here

    State Issues State Attorney General Student Lending Enforcement Department of Education State Legislation

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  • Senate passes bipartisan financial regulatory reform bill

    Federal Issues

    On March 14, by a vote of 67-31, the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) (the bill)—a bipartisan regulatory reform bill crafted by Senate Banking, Housing, and Urban Affairs Committee Chairman Mike Crapo, R-Idaho—that would repeal or modify provisions of Dodd-Frank and ease regulations on all but the biggest banks. (See previous InfoBytes coverage here.) The bill’s highlights include:

    • Improving consumer access to mortgage credit. The bill’s provisions state, among other things, that: (i) banks with less than $10 billion in assets are exempt from ability-to-repay requirements for certain qualified residential mortgage loans; (ii) appraisals will not be required for certain transactions valued at less than $400,000 in rural areas; (iii) banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages are exempt from HMDA’s expanded data disclosures (the provision would not apply to nonbanks and would not exempt institutions from HMDA reporting altogether); (iv) amendments to the S.A.F.E. Mortgage Licensing Act will provide registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines; and (v) the CFPB must clarify how TRID applies to mortgage assumption transactions and construction-to-permanent home loans, as well as outline certain liabilities related to model disclosure use.
    • Regulatory relief for certain institutions. Among other things, the bill simplifies capital calculations and exempts community banks from Section 13 of the Bank Holding Company Act if they have less than $10 billion in total consolidated assets. The bill also states that banks with less than $10 billion in assets, and total trading assets and liabilities not exceeding more than five percent of their total assets, are exempt from Volcker Rule restrictions on trading with their own capital.
    • Protections for consumers. Included in the bill are protections for veterans and active-duty military personnel such as: (i) permanently extending the protection that shields military personnel from foreclosure proceedings after they leave active military service from nine months to one year; and (ii) adding a requirement that credit reporting agencies provide free credit monitoring services and credit freezes to active-duty military personnel. The bill also addresses general consumer protection options such as expanded credit freezes and the creation of an identity theft protection database. Additionally, the bill instructs the CFPB to draft federal rules for the underwriting of Property Assessed Clean Energy loans (PACE loans), which would be subject to TILA consumer protections.
    • Changes for bank holding companies. Among other things, the bill raises the threshold for automatic designation as a systemically important financial institution from $50 billion in assets to $250 billion. The bill also subjects banks with $100 billion to $250 billion in total consolidated assets to periodic stress tests and exempts from stress test requirements entirely banks with under $100 billion in assets. Additionally, certain banks would be allowed to exclude assets they hold in custody for others—provided the assets are held at a central bank—when computing the amount such banks must hold in reserves.
    • Protections for student borrowers. The bill’s provisions include measures to prevent creditors from declaring an automatic default or accelerating the debt against a borrower on the sole basis of bankruptcy or cosigner death, and would require the removal of private student loans on credit reports after a default if the borrower completes a loan rehabilitation program and brings payments current.

    The bill now advances to the House where both Democrats and Republicans think it is unlikely to pass in its current form.

    Federal Issues Federal Legislation Bank Regulatory Dodd-Frank S. 2155 CFPB HMDA Mortgages Licensing TILA TRID Servicemembers Volcker Rule Student Lending Consumer Finance Bank Holding Companies Community Banks Privacy/Cyber Risk & Data Security

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  • Department of Education: states do not have the authority to regulate student loan servicers

    Federal Issues

    On March 12, the U.S. Department of Education published an Interpretation in the Federal Register, which takes the position that state regulation of servicers of loans made under the William D. Ford Federal Direct Loan Program (Direct Loans) and the Federal Family Education Loan Program (FFEL Program Loans) is preempted by Federal law. Specifically, the Department noted that state “regulation of the servicing of Direct Loans” is preempted because it “impedes uniquely Federal interests,” and state regulation of the servicing of FFEL Program Loans “is preempted to the extent that it undermines uniform administration of the program.” The Interpretation was issued in response to several states having recently enacted regulatory regimes, or sought to apply existing consumer protection statutes, imposing additional requirements on such student loan servicers. The Ranking Member of the House Committee on Education and the Workforce, Representative Bobby Scott, D-VA, issued a statement following the notice of publication on March 9, disagreeing with the Department’s Interpretation: “Congress has not given the Secretary the authority to preempt state consumer protection law for student borrowers. . . . I urge the Secretary to reverse this egregious overreach of Federal authority to rescind states’ ability to protect student borrowers and hold unscrupulous servicers accountable.”

    Federal Issues Department of Education Student Lending Preemption Federal Register

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  • Judge orders student loan servicer to comply with CFPB CID

    Courts

    On February 28, the U.S. District Court for the Western District of Pennsylvania granted the CFPB’s petition to enforce a Civil Investigative Demand (CID) issued against a student loan servicer. According to the opinion, the student loan servicer filed a petition with the CFPB to set aside a June 2017 CID because the statutorily-mandated Notification of Purpose did not comply with the Bureau’s notice requirements under 12 U.S.C. § 5562(c)(2). The loan servicer argued that the CID’s list of activities under investigation—i.e., processing payments, charging fees, transferring loans, maintaining accounts, and credit reporting—failed to provide the servicer with fair notice as to the nature of the investigation because it “merely categorize[s] all aspects of a student loan servicing operation.” The CFPB denied the petition, and in November 2017, filed a petition in court to enforce the CID. In granting the Bureau’s petition, the court found that the Notification of Purpose met the statutory notice requirements because nothing in the law bars the CFPB “from investigating the totality of a company’s business operations.” Moreover, the court also found that the CID’s Notification of Purpose met the necessary requirements regarding administrative subpoenas set forth by the U.S. Court of Appeals for the 3rd Circuit, concluding that the investigation is for a “legitimate purpose,” the information requested is relevant and not already known by the Bureau, and the request is not unreasonably broad or burdensome.

    Courts CFPB Student Lending CIDs Appellate Third Circuit

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  • Superior Court denies student loan servicer’s motion to dismiss Massachusetts Attorney General’s lawsuit

    Lending

    On February 28, a Suffolk County Superior Court denied a Pennsylvania-based student loan servicing agency’s (defendant) motion to dismiss a lawsuit filed by the Massachusetts Attorney General, which alleged the defendant overcharged borrowers and improperly processed claims for public service loan forgiveness. (See previous InfoBytes coverage here.) According to the court, the loan servicer’s argument that it is “an arm of the Commonwealth of Pennsylvania” and therefore entitled to sovereign immunity from lawsuits was not convincing; it noted that not only had the defendant failed to qualify as a state entity but it demonstrated “substantial financial and operational independence” from the state.

    Furthermore, the court also rejected the defendant’s arguments that the action was not permitted because the Department of Education is an indispensable party to the suit and that the Massachusetts Attorney General’s claims “are preempted ‘to the extent’ that they ‘conflict with the requirements of federal law.’” The judge opined that the Department of Education is not an indispensable party even though some of the injunctive relief sought may conflict with the Department of Education’s rights under its loan servicing contract or regulatory requirements. 

    Lending State Attorney General Department of Education Student Lending UDAP

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  • Coalition of state attorneys general urge Department of Education to reject accreditor’s application

    State Issues

    On February 20, Massachusetts Attorney General Maura Healey, along with 20 other state attorneys general and the Executive Director of the Hawaii Office of Consumer Protection, issued a letter to U.S. Department of Education (DOE) Secretary Betsy DeVos in opposition to an application submitted by the Accrediting Council for Independent Colleges and Schools (ACICS) to regain its status as a nationally recognized accreditor. According to Healey’s letter, which was submitted in response to the DOE’s January request for comments concerning ACICS’ application, “ACICS’ systemic accreditation failures and refusal to fulfill its obligations to students and taxpayers have enabled predatory schools to ruin the lives of hundreds of thousands of students. . . . Given the gravity of these failures, the Department should not grant any application for recognition made by ACICS without verifying that ACICS has corrected every deficiency and complied with all Departmental requirements effectively and consistently.” As previously covered in InfoBytes, this is not the first time that state attorneys general have reached out to the DOE concerning ACICS’ actions. The DOE upheld the decision to terminate ACICS’ recognition in December 2016.

    State Issues Student Lending NYDFS State Attorney General Department of Education

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