AB 376 protects borrowers from servicing abuses that make loans more expensive and can trigger defaults
SACRAMENTO, CA – Consumer Reports applauded the California Assembly Banking Committee today for voting to approve the Student Borrower Bill of Rights (AB 376), legislation introduced by Assemblymember Mark Stone that aims to provide comprehensive, industry-wide standards and consumer protections for Californians repaying their student loans. Consumer Reports is co-sponsoring the legislation with NextGen California and the Student Borrower Protection Center.
Student loan servicers are the main point of contact for borrowers – taking payments, keeping account records and handling requests. In recent years, these companies have been the target of numerous lawsuits and complaints for abusive practices and mismanagement that have frustrated borrowers’ ability to manage their loans, access legal rights to flexible repayment options, and stay out of default.
“Paying for college is already challenging enough for many Californians who must take on debt in pursuit of the American dream,” said Suzanne Martindale, senior policy counsel for Consumer Reports. “Widespread loan servicing failures undercut the promise of financial aid and cheat borrowers by making their financial burdens even worse. The Student Borrower Bill of Rights will protect Californians by setting reasonable industry standards that ensure borrowers receive fair and consistent treatment.”
Last year, California Attorney General Xavier Becerra sued Navient, the nation’s largest student loan servicer, for steering vulnerable borrowers into more expensive repayment plans and failing to disclose how they could qualify for more affordable payment options, among other abuses. In addition, a report by the Consumer Financial Protection Bureau (CFPB) found that servicers routinely made errors and provided misinformation, such as failing to refund charges wrongly imposed, even after being made aware of the errors. Those charges resulted in late fees and added interest, boosting the size of outstanding debt.
Student loan servicers are currently prohibited from engaging in unfair or deceptive practices, under existing consumer protection laws that apply to businesses generally in California. AB 376 would strengthen the state’s ability to protect borrowers by setting specific standards for loan servicing companies. The bill would:
- Ban “abusive” student loan servicing practices;
- Create minimum loan servicing standards to ensure fair application of payments, improved record-keeping on borrower accounts, and proper staff training so borrowers are informed of more affordable payment options;
- Establish a Student Loan Advocate to review borrower complaints, gather data, and issue reports to the state legislature; and
Californians currently have over $141 billion in outstanding education debt with an average debt of $37,536. An estimated 502,846 Californians have loans in default.
Michael McCauley: email@example.com, 415-431-6747, ext. 7606