AB 376 protects borrowers from servicing abuses that make loans more expensive and can trigger defaults
SACRAMENTO, CA – Consumer Reports applauded the California Senate Judiciary Committee today for voting to approve the Student Borrower Bill of Rights (AB 376), legislation introduced by Assemblymember Mark Stone that establishes first-in-the-nation consumer protections for Californians repaying their student loans. Consumer Reports is co-sponsoring the legislation with NextGen California, Student Borrower Protection Center, Student Debt Crisis, and Young Invincibles. The California Assembly approved the bill in May and it was passed by the Senate Banking Committee in June.
“The Department of Education under Betsy DeVos has refused to set standards to ensure borrowers are treated fairly despite the fact that loan servicing abuses are widespread.” said Suzanne Martindale, senior policy counsel and western states legislative manager for Consumer Reports. “Californians shouldn’t have to put up with shoddy treatment and abusive practices that can make their loans more expensive. This bill will help ensure borrowers don’t get the runaround when they are doing their best to pay off their loans and can access more affordable payment options.”
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.
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 business in 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.