On June 20, following unanimous approval by the state legislature, the governor of Maine enacted a new set of laws – “the Student Loan Bill of Rights” – designed to regulate the student loan servicing industry.

The new laws, enacted for the benefit of Maine residents obligated on a student loan as a primary borrower or a guarantor, impose significant new requirements on student loan servicers and provide for harsh penalties for failure to follow them. “Supervised financial organizations” are exempt from the law, as are financial institution holding companies and their respective subsidiaries.

For example, student loan servicers are now required to obtain a license from the state, although some narrow exceptions exist.

Regulated servicers will also have obligations on a number of subjects, which bear a striking similarity to regulations governing the mortgage loan industry. For example:

  • Superintendent: A superintendent is established to conduct investigations and examinations of regulated servicers, similar to a state-level Consumer Financial Protection Bureau.
  • Ombudsman: A student loan ombudsman is established to, among other things, help resolve borrower complaints. Servicers are required to respond to communications from a student loan ombudsman within 15 days.
  • Records Retention: Servicing records must be maintained for at least 2 years following the final payment or a servicing transfer. Upon a request for such records from the superintendent, servicers have 5 business days to respond.
  • Borrower Requests for Information: Upon receipt of a written inquiry from a borrower or his representative, a student loan servicer must acknowledge receipt of the inquiry within 10 days and substantively respond within 30 days, similar to a qualified written request for a mortgage loan.
  • Servicing Transfers: Transfers of servicing much be completed at least 7 days before the next loan payment is due. Within 45 days of the transfer, the old servicer must send the new servicer “all information” regarding the borrower and the account. All “benefits” offered by the old servicer must continue to be offered by the new servicer, regardless of whether the borrower has accepted those benefits.
  • Loss Mitigation: A servicer must evaluate a borrower for an income-based repayment program before placing the borrower in a forbearance plan or default status.
  • Credit Reporting: Servicers must, at least annually, report a loan payment history to a national credit bureau – even if it contains adverse information – if the servicer regularly reports such information to a national credit bureau.

The law also identifies specific prohibited acts, with wide latitude for interpretation, such as misrepresenting or omitting material information about a loan, misapplying payments, and providing inaccurate credit reporting information.

Any violation of the Student Loan Bill of Rights is an unfair trade practice under the Maine Unfair Trade Practices Act and subject to enforcement under its provisions. The Student Loan Bill of Rights also independently allows a borrower to recover actual damages, a monetary award of three times of the total amount the servicer has collected from the borrower, punitive damages, and attorneys’ fees and costs.

Other states have recently enacted laws governing student loans, including New York, California, Maryland, Colorado, Connecticut, Washington, and Illinois, further demonstrating a trend for state-level regulation in the absence of any clear desire to heavily regulate the industry at the federal level.