Massachusetts is proposing a bill to regulate student loan servicers and bring the Commonwealth in line with other states, including Connecticut, Colorado, Illinois, Maine, Maryland, Nevada, New Jersey, New York, Rhode Island, and Washington, all of which have passed new legislation to regulate the student loan industry. Similar legislation recently has been introduced, but not yet passed, in Iowa, Minnesota, Missouri, New Mexico, North Carolina, California, and Oregon to regulate the student loan servicing industry.
Recently, Housing Wire reported that student loan debt in the U.S. reached $1.5 trillion. According to the report, the average student loan borrower owes $34,500. Against this backdrop, Massachusetts lawmakers are proposing a “student loan bill of rights” to establish a set of standards for student loan servicers operating in the commonwealth and to give Massachusetts Attorney General Maura Healey increased enforcement oversight over servicers. The bill, titled H. 3977, includes many substantive provisions, including a requirement that servicers obtain a license from the Massachusetts Division of Banks to operate in the commonwealth. The Division would then be responsible for establishing criteria related to an applicant’s financial condition and servicing practices. An exemption is available for banks, credit unions, and their subsidiaries.
Other provisions include the creation of a Student Loan Ombudsman, allowing for broad enforcement authority, imposing a minimum two-year record retention requirement, and setting a five-business day deadline to respond to a request from the Ombudsman or Commissioner of Banks.
Like ombudsmen in New York, Maine, Maryland, New Jersey, and the Consumer Financial Protection Bureau, the Massachusetts Ombudsman will be responsible for addressing issues related to payments, wage garnishments, defaults, collection efforts, and discharge applications. The Ombudsman also will oversee efforts to educate the public on repayment options and related issues.
Some states are facing federal preemption questions, and it remains to be seen whether any law might, in whole or part, be invalidated on preemption grounds.
Assuming Massachusetts passes H. 3977, we expect to see increased scrutiny and enforcement actions relative to student loan servicers. If passed, H. 3977 would not take effect until September 2020 with the creation of an Ombudsman, and would not be fully implemented until January 2021 when the licensing and regulatory requirements go into effect.
Troutman Sanders will continue to monitor developments in the implementation of the Regulations.