1. John L. Culhane, Jr., Partner
State Servicing Laws, State Enforcement Actions and Other Noteworthy Developments NCHER LEGAL COMMITTEE MEETING March 24, 2017 Washington, D.C.
John L. Culhane, Jr., Partner
Consumer Financial Services Group
Ballard Spahr LLP
John C. Grugan, Partner
Consumer Financial Services Litigation Group
Ballard Spahr LLP
Copyright 2017 by Ballard Spahr LLP

2. Features of New State Servicing Statutes Vary
Student loan ombudsman
Servicer licensing
Dispute resolution procedures
Servicing transfer notices
Disclosure of repayment and loan forgiveness options
Other conduct requirements and restrictions
Record retention
Penalties for non-compliance

3. Connecticut – Public Act 15-162
Student loan ombudsman
Designated by Commissioner of Department of Banking
Duties include resolving and reporting on borrower complaints
Licensing (took effect July 1, 2016)
Required to service loans to CT residents (borrower or cosigner)
Servicing definition tracks CFPB larger participant rule for payments but then refers to “other administrative services”
Banks and subsidiaries exempt but subject to recordkeeping rules
Dispute resolution procedures
No formal requirements
Ombudsman and Banking Commissioner can get involved

4. Connecticut – Public Act 15-162 (cont.)
Servicing transfer notices
Law does not address
Disclosure of repayment and loan forgiveness options
Law does not specifically address
Other conduct requirements and restrictions
Employing scheme, device, or artifice to defraud or mislead (directly or indirectly)
Engaging in any unfair or deceptive practice toward any person or omitting any material information in connection with servicing
Obtaining property by fraud or misrepresentation

5. Connecticut – Public Act 15-162 (cont.)
Other conduct requirements and restrictions (cont.)
Knowingly misapplying or recklessly applying loan payments
Knowingly or recklessly providing inaccurate information to credit bureau
Failing to report favorable and unfavorable payment histories to a nationally recognized credit bureau
Refusing to communicate with an authorized representative of the student loan borrower
Negligently making a false statement or knowingly and willfully omitting a material fact in a government report

6. Connecticut – Public Act 15-162 (cont.)
Other conduct requirements or restrictions (cont.)
Failing to comply with all applicable federal laws and regulations, including the Truth in Lending Act
Record retention
At least 2 years following final payment or assignment
Penalties for non-compliance
Various administrative remedies
Apparently no private right of action

7. Connecticut – Public Act 15-162 (cont.)
Effective date
Generally effective October 1, 2015
Licensing effective July 1, 2016
Conduct provisions effective July 1, 2016
Proposed amendment # 1 – Raised H.B. No. 7141
Generally effective October 1, 2017
Applies conduct requirements to servicer and control person
Requires servicer and control person to supervise the operation of the business to ensure compliance with applicable law

8. Connecticut – Public Act 15-162 (cont.)
Proposed amendment # 2 – Raised H.B. No. 7145
Generally effective October 1, 2017
Directs Banking Commissioner to set service standards
Standards to be posted on the Department of Banking’s web site on or before January 1, 2018

9. California – Ch. 824, Statutes of 2016
Student loan ombudsman
Law is silent
Servicer licensing
Required to service “in this state”
Servicing definition tracks CFPB larger participant rule
Banks exempt; subsidiaries not specifically mentioned
Dispute resolution procedures
Acknowledge “qualified written request” within 5 business days
Respond within 30 business days (15-day extension possible)

10. California – Ch. 824, Statutes of 2016 (cont.)
Dispute resolution procedures (cont.)
No adverse credit reports for 60 days with payment QWR
Servicing transfer notices
At least 15 days before next required payment
Information must be transferred to new servicer within 45 days
Disclosure of repayment and loan forgiveness options
Must be provided on website (information or links)
Must be provided at least once a year in written correspondence (information) or by (links)

11. California – Ch. 824, Statutes of 2016 (cont.)
Other conduct requirements and restrictions
Employing scheme, device, or artifice to defraud or mislead (directly or indirectly)
Engaging in any unfair or deceptive practice toward any borrower or omitting any material information in connection with servicing
Misapplying loan payments
Failing to accurately report payment performance to at least one nationwide consumer reporting agency
Refusing to communicate with an authorized representative of the borrower
Negligently or intentionally making a false statement or knowingly and willfully omitting a material fact in a government report

12. California – Ch. 824, Statutes of 2016 (cont.)
Record retention
At least 3 years after payment, sale, assignment or transfer
Penalties for non-compliance
Various administrative remedies
Apparently no private right of action
Effective date
Certain provisions authorizing conduct by the Commissioner are effective January 1, 2017
Licensing and other provisions are effective January 1, 2018

13. Washington, D.C. – Act 21-571 Student loan ombudsman
Designated by Commissioner of Department of Securities, Insurance and Banking
Duties include resolving and reporting on borrower complaints
Servicer licensing
Required to service loans to DC residents (borrower or cosigner)
Servicing definition largely tracks CFPB larger participant rule
Banks exempt; subsidiaries not specifically mentioned
Licensing is administered by the Ombudsman

14. Washington, D.C. – Act 21-571 (cont.)
Dispute resolution procedures
Bill is silent
Servicing transfer notices
Disclosure of repayment and loan forgiveness options
Other conduct requirements and restrictions

15. Washington, D.C. – Act 21-571 (cont.)
Record retention
Bill is silent
Penalties for non-compliance
Effective date
Generally effective February 18, 2017
Implementing rules required within 180 days of effective date

16. Other Pending Bills Massachusetts – HB 2173; SB 129 Minnesota – HF 21
Missouri – HB 620
New Mexico – HB 318
New York – AB 3008; SB 2008 (Executive Budget)
Virginia – HB 1915; SB 1053 (defeated)
Washington – HB 1440; SB 5210

17. State Regulatory Activities
State authorities now are increasingly aggressive
Some examples
Illinois and Washington – recent suit against student loan servicer
Massachusetts – dedicated student lending enforcement unit
New York AG, NYS DFS – conducting multiple investigations
Washington – Student Loan Bill of Rights proposed by AG Ferguson
Coordination between states irregular but increasing

18. Massachusetts Attorney General
Active enforcement unit
Focused on:
IBR processing
On/off shore staffing and connection with effective communication with borrowers
SCRA benefits
Willing to explore alternatives to payment to resolve enforcement actions

19. Debt Settlement
Many states have debt settlement or debt management laws that should apply to student loan debt relief companies
Laws require licensing or bonding, prohibit the collection of advance fees or other upfront payments, and impose stringent disclosure requirements
Many state attorneys general now have investigative units that cover student loan fraud which is broadly defined
Illinois Attorney General has filed suit against seven different student loan debt relief companies, only one of which was located in-state
New Hampshire Banking Department previously entered into a consent order with one student loan debt relief company

20. Litigation Third party collections Credit reporting
Marketing/UDAP claims relating to value of program/other representations

21. Thank you! Panelists John C. Grugan John L. Culhane, Jr. Partner
Consumer Financial Services Group
John C. Grugan
Consumer Financial Services Litigation Group

22. Panelist – John L. Culhane, Jr.
Partner at Ballard Spahr and a member of the firm’s Consumer Financial Services, Mortgage Banking, Bank Regulation and Supervision, Higher Education, and Privacy and Data Security Groups as well as its Marketplace Lending Task Force, Fair Lending Task Force, TCPA Task Force, and Military Lending Act Task Force
Compliance practice emphasizes counseling clients on the development and implementation of innovative loan, leasing, and payment programs, and includes counseling on fair lending, servicing and collection issues
Regulatory practice includes preparing clients for banking agency and CFPB targeted fair lending and full spectrum compliance examinations as well as assisting in the defense of consumer class actions, attorney general investigations, and agency enforcement actions
Named a top consumer financial services lawyer by Chambers USA, 2015 & 2016
Charter member of the American College of Consumer Financial Services Lawyers
Former Chair of the Subcommittee on Fair Lending of the ABA Committee on Consumer Financial Services

23. Panelist – John C. Grugan
Partner at Ballard Spahr and a member of the firm’s Consumer Financial Services Litigation, White Collar Defense/Internal Investigations, and Securities Litigation Groups
Concentrates his practice on government enforcement defense, regularly defending clients during investigations conducted by, and in litigation brought by, the Consumer Financial Protection Bureau, the U.S. Securities and Exchange Commission, the U.S. Department of Justice, the U.S. Department of Education, self-regulatory organizations, state attorneys general, and state securities and banking regulators
Experience includes conducting internal investigations on behalf of companies or their boards of directors
Frequent author and speaker on issues relating to consumer financial services regulation and litigation
DMEAST # v1