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SB-674 California Student Loan Refinancing Program. (2017-2018)

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Date Published: 04/17/2017 09:00 PM
SB674:v98#DOCUMENT

Amended  IN  Senate  April 17, 2017

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill No. 674


Introduced by Senator Allen

February 17, 2017


An act to amend Sections 94157, 94158, 94159, 94160, 94161, and 94163 94163, 94164, and 94165 of the Education Code, relating to student loans, and making an appropriation therefor.


LEGISLATIVE COUNSEL'S DIGEST


SB 674, as amended, Allen. California Student Loan Refinancing Program.

Under

(1) Under existing law, the California Educational Facilities Authority Act, the California Educational Facilities Authority is, among other things, authorized to borrow money and issue bonds, notes, and other obligations. The authority is also authorized to hold or invest in student loans, create pools of student loans, and sell bonds bearing interest on a taxable or tax-exempt basis or other interests backed by the pools of student loans.
Existing law establishes the California Student Loan Refinancing Program under the administration of the authority, with the goal of helping eligible college graduates refinance student loan debt at favorable rates by creating a revolving fund so that additional refinancing may occur to help more qualified borrowers, as defined, through the creation of a loss reserve account, as defined. Under the program, the authority is authorized to contract with any financial institution, as defined, for the purpose of allowing the financial institution to participate in the program. Existing law requires the authority to establish a loss reserve account, consisting of moneys deposited by the authority, as specified, for each financial institution with which the authority enters into a contract. Existing law specifies the conditions under which a qualified loan, as defined, may be enrolled in the program in order to obtain the protection against loss provided by its loss reserve account. Existing law limits qualified borrowers under the program to those who, among other things, have completed a bachelor’s degree, have employment in a public service program or by a nonprofit organization located in California, and are able to repay, as determined by the authority.
This bill would expand the definition of “qualified borrower” for this program by including individuals who have completed a graduate an associate’s, graduate, or professional degree, or received a certificate, diploma, or degree from a trade, career, or technical school, by eliminating the requirement that they be able to repay, and by revising the employment requirement to no longer require employment in a public service program or by a nonprofit organization, and would restrict the definition of “qualified borrower” by requiring employment for no less than 6 continuous months with one employer located in California, by requiring that the individual’s loans be in deferment, forbearance, or repayment status, by requiring that the individual’s loans not be in delinquent or default status, and by requiring the individual to comply with any other requirement determined by the authority. The bill would expand the definition of “qualified loan” for this program by including a loan issued by a private lending institution for the costs of attendance at any public or private nonprofit trade, career, or technical school in the United States in the definition of “private student loan.” The bill would rename the “loss reserve account” the “first loss protection account” and would narrow the definition by prohibiting the contributions by the state for each qualified loan from exceeding 10% of the amount of the qualified loan, as determined by the authority, and would limit covering losses on a qualified loan from the first loss protection account from exceeding 10%, as determined by the authority. Because the bill would authorize the authority to raise and expend funds for new purposes, the bill would make an appropriation. The bill would specify terms required to be included in a contract between the authority and a financial institution for the purpose of allowing the financial institution to participate in the program. The bill would establish the California Student Loan Refinancing Program Fund in the State Treasury, and would provide that moneys in the fund are available to the authority for the administration of the program, upon appropriation by the Legislature. The bill would limit the authorization of the authority to levy an administrative fee for each qualified loan within a loss reserve first loss protection account, to not exceed 5% of the total amount of the qualified loan. The bill would limit costs for which a financial institution may be reimbursed from its loss reserve first loss protection account to an amount not to exceed 10% of the amount of the qualified loan, as determined by the authority, and to only those purposes specified in existing law. The bill would require a financial institution, in any case in which the payment of a claim under these provisions has been made to the financial institution, to assign to the authority any right or title to, or interest in, any collateral, security, or other right of recovery in connection with a qualified loan made under the program. The bill would authorize the authority to enter into agreements with qualified entities, in addition to financial institutions and other agencies of the state, to provide necessary assistance in carrying out the program, including origination and servicing of qualified loans.
(2) The Administrative Procedure Act governs the procedure for the adoption, amendment, or repeal of regulations by state agencies and for the review of those regulatory actions by the Office of Administrative Law. Existing law authorizes the authority to adopt emergency regulations pursuant to that act.
This bill would instead exempt regulations adopted by the authority to implement the program from the Administrative Procedure Act.

This

(3) This bill also would transfer $25,000,000 from the General Fund to the California Student Loan Refinancing Program Fund and would appropriate those moneys to the authority for purposes of the program.
Vote: 2/3   Appropriation: YES   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 94157 of the Education Code is amended to read:

94157.
 As used in this article, unless the context requires otherwise, the following terms have the following meanings:
(a) “Executive director” means the Executive Director of the California Educational Facilities Authority.
(b) “Financial institution” means a bank as defined under paragraph (4) of subdivision (b) of Section 1201 of the Commercial Code, including a federal- or state-chartered bank, that has been approved by the authority to enroll qualified loans in the program and has agreed to all terms and conditions set forth in this article and as may be required by the authority. A financial institution shall have a branch or office, or be otherwise present for jurisdictional purposes, in California.
(c) “Loss reserve “First loss protection account” means an account in the State Treasury or in any financial institution that is established and maintained by the authority for the benefit of a financial institution participating in the program for the purposes of any of the following:
(1) Depositing all required fees paid by the financial institution and the qualified borrower, if applicable.
(2) Depositing contributions made by the state and, if applicable, the federal government or other sources. Contributions by the state for each qualified loan shall not exceed 10 percent of the amount of the qualified loan, as determined by the authority.
(3) Covering losses not to exceed 10 percent of a qualified loan, as determined by the authority, on enrolled qualified loans sustained by the financial institution by disbursing funds accumulated in the first loss reserve protection account.
(d) “Private student loan” means a loan issued by a private lending institution for the costs of attendance at any public or private nonprofit college or university in the United States, or any public or private nonprofit trade, career, or technical school in the United States, notwithstanding the definitions in subdivisions (i), (k), and (l) of Section 94110.
(e) “Program” means the California Student Loan Refinancing Program created pursuant to this article.
(f) “Qualified borrower” means an individual meeting all of the following requirements:
(1) Residency in California.
(2) Completion of a an associate’s, bachelor’s, graduate, or professional degree. degree, or receipt of a certificate, diploma, or degree from a trade, career, or technical school.
(3) Employment for no less than six continuous months with one employer located in California.
(4) Meeting the criteria established by the financial institution and the authority.
(5) His or her loans are in deferment, forbearance, or repayment status.
(6) His or her loans are not delinquent or in default status.
(7) Any other requirement, as determined by the authority.
(g) “Qualified loan” means a loan or a portion of a loan made by a financial institution to a qualified borrower to refinance a private student loan under the program. A qualified loan made under the program may be made with the interest rates, fees, and other terms and conditions agreed upon by the financial institution and the qualified borrower. Only a loan determined by the authority to be an educational loan nondischargeable in bankruptcy as set forth in Section 523 of Title 11 of the United States Code as that section existed on August 15, 2014, shall be a qualified loan eligible for financing under this article.

SEC. 2.

 Section 94158 of the Education Code is amended to read:

94158.
 (a) The California Student Loan Refinancing Program is hereby established under the administration of the authority. The goal of the program is to help college graduates California residents with private student loan debt who meet the eligibility criteria of the program, who are defined as qualified borrowers under Section 94157, to refinance private student loan debt at favorable rates. terms. This goal would be achieved through the creation of a revolving fund so that additional refinancing may occur to help more qualified borrowers, and through the creation of a loan loss reserve first loss protection account that can be leveraged by private lenders in the private student loan market.
(b) The authority may contract with any financial institution for the purpose of allowing the financial institution to participate in the program. The contract shall include all of the following terms:
(1) The creation of a first loss protection account by the authority for the benefit of the financial institution.
(2) The authority, and if applicable, the qualified borrower shall deposit moneys to the credit of the financial institution’s first loss protection account when the financial institution makes a qualified loan to a qualified borrower.
(3) Any liability of the state and the authority to the financial institution is limited to the amount of money contributed by the state, which shall not exceed 10 percent of the amount of the qualified loan, as determined by the authority, to the first loss protection account of the financial institution for a qualified loan.
(4) The financial institution shall provide the information that the authority may require, including financial information that is identifiable with, or identifiable from, the financial records of the qualified borrower.
(5) The financial institution shall require each qualified borrower, prior to receiving a loan under the program, to sign a written representation to the financial institution that the qualified borrower has no legal, beneficial, or equitable interest in any nonrefundable premium charges or any other funds credited to the first loss protection account established by the authority for the financial institution.
(6) Other terms that the authority may require for purposes of this article.
(c) Notwithstanding any other law, a financial institution is not subject to laws restricting the disclosure of financial information when the financial institution provides information to the authority as required by paragraph (4) of subdivision (b).

(c)

(d) A credit union operating pursuant to a certificate issued under the California Credit Union Law (Division 5 (commencing with Section 14000) of the Financial Code) may participate in the program only to the extent participation is in compliance with the California Credit Union Law. Nothing in this article shall be construed to limit the authority of the Commissioner of Business Oversight to regulate credit unions subject to the commissioner’s jurisdiction under the California Credit Union Law.

(d)

(e) The California Student Loan Refinancing Program Fund is hereby established in the State Treasury. Upon appropriation by the Legislature, the moneys in the fund are available to the authority for the administration of this article.

SEC. 3.

 Section 94159 of the Education Code is amended to read:

94159.
 (a) The authority shall establish a loss reserve first loss protection account for each financial institution with which the authority enters into a contract.
(b) The loss reserve first loss protection account for a financial institution shall consist of moneys deposited by the authority and, as applicable, deposited by the qualified borrowers, the financial institution, or any other source.
(c) Notwithstanding any other law, the authority may establish and maintain loss reserve first loss protection accounts, as provided in subdivision (c) of Section 94157, with any financial institution under any policies the authority may adopt.
(d) All moneys in a loss reserve first loss protection account established pursuant to this article are the exclusive property of, and solely controlled by, the authority. Interest or income earned on moneys credited to the loss reserve first loss protection account shall be deemed to be part of the loss reserve account. The authority may withdraw from the loss reserve first loss protection account all, or a portion of, the interest or other income that has been credited to the loss reserve first loss protection account. Any withdrawal made pursuant to this subdivision shall be used for the sole purpose of offsetting costs associated with carrying out the program, including administrative costs and loss reserve first loss protection account contributions.
(e) The combined amount to be deposited by the financial institution into any individual loss reserve first loss protection account over a three-year period, in connection with any single qualified borrower, shall be not more than seventy-five twenty-five thousand dollars ($75,000). ($25,000).
(f) The authority may levy an administrative fee fee, as provided in subdivision (c) of Section 94160, for each qualified loan within a loss reserve first loss protection account, not to exceed 5 percent of the total amount of the qualified loan, for deposit in the loss reserve first loss protection account for the financial institution.

SEC. 4.

 Section 94160 of the Education Code is amended to read:

94160.
 (a) If a financial institution seeks to enroll a qualified loan in the program in order to obtain the protection against loss provided by its loss reserve first loss protection account, after disclosing relevant qualified loan financial information to the qualified borrower, it shall notify the authority in writing on a form prescribed by the authority, within 15 calendar days after the date on which the qualified loan is made, of all of the following:
(1) The disbursement of the qualified loan.
(2) The dollar amount of the qualified loan enrolled.
(3) The interest rate applicable to, and the term of, the qualified loan.
(4) The amount of any administrative fee related to the processing of an existing loan or the issuance of a new loan.
(b) The executive director may authorize an additional five days for a financial institution to submit the written notification described in subdivision (a) to the authority on a loan-by-loan basis for a reason limited to conditions beyond the reasonable control of the financial institution.
(c) When making a qualified loan that will be enrolled under the program, the financial institution shall require the qualified borrower to whom the qualified loan is made to pay an administration fee as determined by the authority pursuant to subdivision (f) of Section 94159, if applicable. The financial institution shall also pay an administration fee in an amount equal to the fee paid by the qualified borrower, borrower pursuant to subdivision (f) of Section 94159, if applicable. The financial institution shall deliver the fees collected under this subdivision to the authority for deposit in the loss reserve first loss protection account for the financial institution.

SEC. 5.

 Section 94161 of the Education Code is amended to read:

94161.
 (a) The authority shall establish procedures under which financial institutions may submit claims for reimbursement for losses incurred as a result of qualified loan defaults. A financial institution that charges off all or part of a qualified loan to the loss reserve first loss protection account may file a claim for reimbursement with the authority if all of the following conditions are met:
(1) The claim occurs contemporaneously with the action of the financial institution to charge off all or part of the qualified loan.
(2) The charge off on a qualified loan is made in a manner that is consistent with the financial institution’s usual method for making determinations on personal loans that are not qualified loans.
(3) The financial institution has met all of the conditions established by the authority to assist the borrower in making payments prior to filing a claim for reimbursement.
(b) Costs for which a financial institution may be reimbursed from its loss reserve first loss protection account shall not exceed up to 10 percent of the amount of the qualified loan, as determined by the authority, and are limited to the amount of qualified loan principal charged off, accrued interest on the principal, and reasonable out-of-pocket expenses incurred in pursuing its collection efforts, including preservation of collateral, and any other related costs. Proper documentation of the expenses, to the satisfaction of the authority, shall be presented at the time of the claim.
(c) If a financial institution files two or more claims contemporaneously, and there are insufficient funds in the loss reserve account at that time to cover the entire amount of those claims, the financial institution may designate the order of priority in which the claims shall be paid.
(d) A financial institution may seek reimbursement of qualified loan losses prior to the liquidation of collateral, if any, from defaulted qualified loans. The financial institution shall repay the loss reserve first loss protection account for any moneys received as reimbursement under subdivision (b) if the financial institution recovers moneys from the qualified borrower or from the liquidation of collateral for the defaulted qualified loan, less any reasonable out-of-pocket expenses incurred in collection of this amount.
(e) In any case in which the payment of a claim under this section has been made to a financial institution, the financial institution shall assign to the authority any right or title to, or interest in, any collateral, security, or other right of recovery in connection with a qualified loan made under the program.

SEC. 6.

 Section 94163 of the Education Code is amended to read:

94163.
 The authority may enter into agreements with financial institutions, with other agencies of the state, or other qualified entities to provide necessary assistance in carrying out the program, including origination and servicing of qualified loans.

SEC. 7.

 Section 94164 of the Education Code is amended to read:

94164.
 Notwithstanding the other provisions of this article, the authority may facilitate the development of a secondary market for a qualified loan under the program by providing security for that loan, thereby increasing participation in the program by financial institutions and improving access to qualified borrowers to refinance private student loans. For purposes of this section, the actions that the authority may take include, but are not necessarily limited to, assigning all or a portion of any loss reserve first loss protection account to any other entity in connection with providing security for a qualified loan, including a trustee of a securitization trust, transferring a qualified loan from a financial institution to a securitization trust, and assisting underwriters in marketing a qualified loan to the secondary market.

SEC. 8.

 Section 94165 of the Education Code is amended to read:

94165.
 The authority may adopt emergency regulations for the implementation of to implement the program. Any emergency regulations that may be adopted by the authority under this section shall be adopted in accordance with the The Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). The adoption of these regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Code) does not apply to regulations adopted by the authority pursuant to this section.

SEC. 7.SEC. 9.

 The sum of twenty-five million dollars ($25,000,000) is transferred from the General Fund to the California Student Loan Refinancing Program Fund and is hereby appropriated to the California Educational Facilities Authority for the purposes of funding loss reserve first loss protection accounts and administering the California Student Loan Refinancing Program pursuant to Article 4.1 (commencing with Section 94157) of Chapter 2 of Part 59 of Division 10 of Title 3 of the Education Code.