AB 376 protects California borrowers from servicing abuses that can trigger defaults and make loans more expensive
SACRAMENTO, CA – The California Assembly today approved the Student Borrower Bill of Rights (AB 376), legislation introduced by Assemblymember Mark Stone that will establish first-in-the-nation consumer protections for Californians repaying their student loans. Consumer Reports, which is co-sponsoring the legislation with NextGen California; Student Borrower Protection Center; Student Debt Crisis; and Young Invincibles, praised lawmakers for today’s vote and urged the Senate to follow suit.
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.
“Millions of Californians are doing their best to pay off their education debt, but that burden is made even more challenging by a terribly complex and confusing loan repayment system,” said Suzanne Martindale, senior policy counsel and western states legislative manager for Consumer Reports. “Multiple investigations have shown that loan servicers routinely lose paperwork, misapply payments, provide borrowers inaccurate information, and even steer them into more costly repayment options with virtually no accountability. At a time when the U.S. Department of Education has refused to set loan servicing standards to help borrowers, it’s critical for states like California to lead the way and address these longstanding abuses.”
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.
Unlike consumers with mortgages and credit cards, student loan borrowers currently have few protections when interacting with their loan servicers. Student loan servicers are generally prohibited from engaging in unfair or deceptive practices, like any other businessin California, but they are not currently subject to industry-specific standards. AB 376 would strengthen the state’s ability to protect borrowers by specifying minimum standards and improving oversight of their activities. The bill would:
- Ban “abusive” student loan servicing practices that take unreasonable advantage of borrowers’ confusion over loan repayment options;
- 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
- Grant the Department of Business Oversight additional “market monitoring” authorities to collect better data about the student loan servicing industry.
Californians currently have over $141 billion in outstanding education debt with an average debt of $37,536. An estimated 502,846 Californians are behind on repaying their loans.
Michael McCauley, mmccauley@consumer.org, 415-431-6747, ext. 7606