Code Section Group

Financial Code - FIN

DIVISION 12.5. Student Loan Servicing Act [28100 - 28182]

  ( Division 12.5 added by Stats. 2016, Ch. 824, Sec. 2. )

CHAPTER 3. Licensee Duties [28126 - 28150]
  ( Chapter 3 added by Stats. 2016, Ch. 824, Sec. 2. )

28126.
  

(a) A licensee shall notify the commissioner, in writing, of any change in the information provided in the application for a license, as applicable, not later than 10 business days after the occurrence of the event that results in the information becoming inaccurate or incomplete.

(b) (1) If a licensee seeks to change its place of business to a street address other than that designated in its license, the licensee shall provide notice to the commissioner at least 10 days prior to the change. The commissioner shall notify the licensee within 10 days if the commissioner disapproves the change, and if the commissioner does not notify the licensee of disapproval within 10 days, the change in address shall be deemed approved.

(2) If notice is not given at least 10 days prior to the change of a street address of a place of business, as required by subdivision (b), or notice is not given at least 10 days prior to engaging in the business of servicing student loans at a new location, the commissioner may assess a civil or administrative penalty on the licensee not to exceed five hundred dollars ($500).

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

28128.
  

(a) A licensee seeking to engage in the business of servicing student loans at a new location shall submit an application for a branch office license to the commissioner at least 10 days before engaging in the business of servicing student loans at a new location and pay the fee required by Section 28112.

(b) The licensee may engage in the business of servicing student loans at the new location 10 days after the date of submission of a branch office application.

(c) (1) The commissioner shall approve or deny the person responsible for engaging in the business of servicing at the new location in accordance with Article 2 of Chapter 2 (commencing with Section 28112), and shall notify the licensee of this decision within 90 days of the date of receipt of the application.

(2) If the commissioner denies the application, the licensee shall, within 10 days of the date of receipt of notification of the commissioner’s denial, submit a new application to the commissioner designating a different person responsible for engaging in the business of servicing at the new location. The commissioner shall approve or deny the different person as provided in paragraph (1).

(d) A licensee shall not engage in the business of servicing student loans at a new location in a name other than a name approved by the commissioner.

(e) A branch office license to engage in the business of servicing at a new location shall be issued in accordance with this section. A change of street address of a place of business designated in a license shall be made in accordance with Section 28126 and shall not constitute a new location subject to the requirements of this section.

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

28130.
  

A licensee shall do all of the following:

(a) Develop policies and procedures reasonably intended to promote compliance with this division.

(b) File with the commissioner any report required by the commissioner.

(c) Comply with the provisions of this division and any regulation or order of the commissioner.

(d) Submit to periodic examination by the commissioner as required by this division and any regulation or order of the commissioner.

(e) Advise the commissioner of filing a petition for bankruptcy within five days of the filing.

(f) Provide, free of charge on its Internet Web site, information or links to information regarding repayment and loan forgiveness options that may be available to borrowers and provide this information or these links to borrowers via written correspondence or email at least once per calendar year.

(g) (1) Respond to a qualified written request by acknowledging receipt of the request within five business days and within 30 business days, provide information relating to the request and, if applicable, the action the licensee will take to correct the account or an explanation for the licensee’s position that the borrower’s account is correct.

(2) The 30-day period described in paragraph (1) may be extended for not more than 15 days if, before the end of the 30-day period, the licensee notifies the borrower of the extension and the reasons for the delay in responding.

(3) After receipt of a qualified written request related to a dispute on a borrower’s payment on a student loan, a licensee shall not, for 60 days, furnish adverse information to any consumer reporting agency regarding any payment that is the subject of the qualified written request.

(h) (1) Except as provided in federal law or required by a student loan agreement, a licensee shall inquire of a borrower how to apply an overpayment to a student loan. A borrower’s direction on how to apply an overpayment to a student loan shall stay in effect for any future overpayments during the term of a student loan until the borrower provides different directions.

(2) For purposes of this subdivision, “overpayment” means a payment on a student loan in excess of the monthly amount due from a borrower on a student loan, also commonly referred to as a prepayment.

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

28132.
  

(a) A licensee shall not be required to comply with the requirements of subdivision (g) of Section 28130, if the licensee reasonably determines that any of the following apply:

(1) A qualified written request is substantially the same as a qualified written request previously made by the borrower, for which the licensee has previously complied with its obligation to respond pursuant to subdivision (g) of Section 28130, unless the borrower provides new and material information to support the more recent qualified written request. New and material information means information that was not reviewed by the licensee in connection with a prior qualified written request submitted by the same borrower and that is reasonably likely to change the licensee’s prior response related to that request.

(2) A qualified written request is overbroad. A qualified written request is overbroad if the licensee cannot reasonably determine from the qualified written request the specific error that the borrower asserts has occurred on his or her account or the specific information the borrower is requesting related to his or her account. To the extent a licensee can reasonably identify a valid assertion of an error or valid request for information in a qualified written request that is otherwise overbroad, the licensee shall comply with the requirements of subdivision (g) of Section 28130 with respect to that valid asserted error or request for information.

(3) A qualified written request is delivered to the licensee more than one year after the licensee sells, assigns, or transfers the servicing of the student loan that is the subject of the qualified written request to another servicer.

(b) If, pursuant to subdivision (a), a licensee determines that it is not required to comply with the requirements of subdivision (g) of Section 28130, the licensee shall notify the borrower of the determination, and the basis for its determination, in writing not later than five business days after making such determination.

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

28134.
  

(a) If the sale, assignment, or other transfer of the servicing of a student loan results in a change in the identity of the party to whom the borrower is required to send payments or direct any communications concerning the student loan the licensee shall notify the borrower in writing at least 15 days before the borrower is required to send a payment on the student loan of all of the following:

(1) The identity of the new student loan servicer and the number of the license of the new student loan servicer issued by the commissioner.

(2) The name and address of the new student loan servicer to whom subsequent payments or communications are required to be sent.

(3) The telephone numbers and Internet Web sites of the new student loan servicer.

(4) The effective date of the sale, assignment, or transfer.

(5) The date on which the licensee, as the current student loan servicer, will stop accepting payments on the borrower’s student loan.

(6) The date on which the new student loan servicer will begin accepting payments on the borrower’s student loan.

(b) A licensee shall transfer all information regarding a borrower, a borrower’s account, and a borrower’s student loan to the new licensee servicing the borrower’s student loan within 45 calendar days.

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

28136.
  

The licensee shall not do any of the following:

(a) Directly or indirectly employ any scheme, device, or artifice to defraud or mislead a borrower.

(b) Engage in any unfair or deceptive practice toward any borrower or misrepresent or omit any material information in connection with the servicing of a student loan, including, but not limited to, misrepresenting the amount, nature, or terms of any fee or payment due or claimed to be due on a student loan, the terms and conditions of the student loan agreement, or the borrower’s obligations under the student loan.

(c) Misapply payments made by a borrower to the outstanding balance of a student loan.

(d) If the licensee is required to or voluntarily reports to a consumer reporting agency, fail to accurately report each borrower’s payment performance to at least one consumer reporting agency that compiles and maintains files on consumers on a nationwide basis, upon acceptance as a data furnisher by that consumer reporting agency. For purposes of this subdivision, a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis is one that meets the definition in Section 603(p) of the federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681a(p)).

(e) Refuse to communicate with an authorized representative of the borrower who provides a written authorization signed by the borrower, provided the licensee may adopt procedures reasonably related to verifying that the representative is in fact authorized to act on behalf of the borrower.

(f) Negligently or intentionally make any false statement or knowingly and willfully make any omission of a material fact in connection with any information or reports filed with the commissioner, the department, or another governmental agency.

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

28138.
  

Notwithstanding subdivision (b) of Section 28134 and unless prohibited by federal law, a licensee shall retain and maintain its records of servicing a borrower’s student loan for a minimum of three years after the student loan has been sold, assigned, transferred, or paid in full.

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

28140.
  

A licensee shall continuously maintain a minimum net worth of at least two hundred fifty thousand dollars ($250,000).

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

28142.
  

(a) A licensee shall maintain a surety bond in accordance with this section in a minimum amount of twenty-five thousand dollars ($25,000). The bond shall be payable to the commissioner and issued by an insurer authorized to do business in this state. An original surety bond, including any and all riders and endorsements executed subsequent to the effective date of the bond, shall be filed with the commissioner within 10 days of execution. For licensees with multiple licensed locations, only one surety bond is required. The bond shall be used for the recovery of expenses, fines, and fees levied by the commissioner in accordance with this division or for losses or damages incurred by borrowers as the result of a licensee’s noncompliance with the requirements of this division.

(b) When an action is commenced on a licensee’s bond, the commissioner may require the filing of a new bond. Immediately upon recovery of any action on the bond, the licensee shall file a new bond. Failure to file a new bond within 10 days of the recovery on a bond, or within 10 days after notification by the commissioner that a new bond is required, constitutes sufficient grounds for the suspension or revocation of the license.

(c) The commissioner may require a higher bond amount for a licensee based on the dollar amount of servicing of student loans by that licensee.

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

28144.
  

(a) Each licensee shall pay to the commissioner its pro rata share of all costs and expenses reasonably incurred in the administration of this division, as estimated by the commissioner, for the ensuing year and any deficit actually incurred or anticipated in the administration of the division in the year in which the assessment is made. The pro rata share shall be the proportion that a licensee’s servicing activities in this state bears to the costs and expenses remaining after the amount assessed pursuant to subdivision (c).

(b) On or before the 30th day of September in each year, the commissioner shall notify each licensee of the amount assessed and levied against it and that amount shall be paid by October 31. If payment is not made by October 31, the commissioner shall assess and collect a penalty, in addition to the assessment, of 1 percent of the assessment for each month or part of a month that the payment is delayed or withheld.

(c) In the levying and collection of the assessment, a licensee shall neither be assessed for nor be permitted to pay less than two hundred fifty dollars ($250) per licensed location per year.

(d) If a licensee fails to pay the assessment on or before the 31st day of October, the commissioner may by order summarily suspend or revoke the license issued to the licensee. If, after an order is made, a request for hearing is filed in writing within 30 days, and a hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date. During any period when the license is revoked or suspended, a licensee shall not engage in the business of servicing student loans in this state pursuant to this division except as may be permitted by order of the commissioner. However, the revocation, suspension, or surrender of a license shall not affect the powers of the commissioner as provided in this division.

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

28146.
  

(a) A licensee shall file an annual report with the commissioner, on or before the 15th day of March, giving the relevant information that the commissioner reasonably requires concerning the business and operations conducted by the licensee in the state during the preceding calendar year, including information regarding the number of loans that are sold, assigned, or transferred to another party. The individual annual reports filed pursuant to this section shall be made available to the public for inspection. The report shall be made under oath and in the form prescribed by the commissioner.

(b) A licensee shall make other special reports that may be required by the commissioner.

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

28148.
  

(a) At the end of the licensee’s fiscal year, but in no case more than 12 months after the last audit conducted pursuant to this section, each licensee shall cause its books and accounts to be audited by an independent certified public accountant. The audit shall be sufficiently comprehensive in scope to permit the expression of an opinion on the financial statements prepared in accordance with generally accepted accounting principles and shall be performed in accordance with generally accepted auditing standards. The audit shall include a reconciliation of the licensee’s trust accounts as of the audit date.

(b) “Expression of an opinion” includes (1) an unqualified opinion, (2) a qualified opinion, (3) a disclaimer of opinion, or (4) an adverse opinion. If a financial statement, report, certificate, or opinion of the independent certified public accountant is in any way qualified, the commissioner may require the licensee to take any action that the commissioner deems appropriate to address the qualification. The commissioner may reject any financial statement, report, certificate, or opinion by notifying the licensee or other person required to make the filing of the rejection and the reason therefor. Within 30 days after the receipt of the notice, the licensee or other person shall correct the deficiencies. Failure to correct the deficiencies is a violation of this division. The commissioner shall retain a copy of all financial statements, reports, certificates, or opinions so rejected.

(c) If a qualified or adverse opinion is expressed or if an opinion is disclaimed, the reasons therefor shall be fully explained.

(d) The audit report shall be filed with the commissioner within 105 days of the end of the licensee’s fiscal year. The report filed with the commissioner shall be certified by the certified public accountant conducting the audit.

(e) If a licensee required to make an audit fails to cause an audit to be made, the commissioner may cause the audit to be made by an independent certified public accountant at the licensee’s expense. The commissioner shall select the independent certified public accountant by advertising for bids or by other fair and impartial means. The commissioner may summarily revoke the license of a licensee who fails to file a certified financial statement prepared by an independent certified public accountant as required by this division or at the request of the commissioner.

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

28150.
  

A licensee that ceases to service student loans to borrowers shall inform the commissioner in writing and surrender the license and all other indicia of license to the commissioner. The commissioner may require a licensee to file a plan for the disposition of the servicing business that includes, but is not limited to, a closing audit. Upon receipt of the written notice and plan, if required, the commissioner shall determine whether the licensee has violated this division. The commissioner shall give a licensee notice of accepting a surrendered license, and a license shall not be deemed surrendered until the commissioner accepts its tender in writing.

(Added by Stats. 2016, Ch. 824, Sec. 2. Effective January 1, 2017. Operative July 1, 2018, pursuant to Section 28182.)

FINFinancial Code - FIN