HOUSE BILL No. 6448

 

 

October 17, 2018, Introduced by Rep. Yanez and referred to the Committee on Appropriations.

 

     A bill to regulate student loan lenders and servicers; to

 

require the licensing of certain student loan servicers; to

 

prescribe the powers and duties of certain other public officers

 

and agencies; to provide for the promulgation of rules; and to

 

provide remedies and penalties.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 1. This act shall be known and may be cited as the

 

"student loan servicer licensing act".

 

     Sec. 3. As used in this act:

 

     (a) "Department" means the department of insurance and

 

financial services.

 

     (b) "Depository institution" means a state or national bank,

 

state or federal savings bank, state or federal savings and loan

 

association, or state or federal credit union.

 


     (c) "Director" means the director of the department or his or

 

her designated representative.

 

     (d) "Servicing" means any of the following:

 

     (i) Receiving any scheduled periodic payments from a student

 

loan borrower under the terms of a student education loan.

 

     (ii) Applying the payments of principal and interest and any

 

other payments with respect to the amounts received from a student

 

loan borrower, as may be required under the terms of a student

 

education loan.

 

     (iii) Performing any other administrative services with

 

respect to a student education loan.

 

     (e) "Student education loan" means any loan that is primarily

 

for personal use to finance education or other school-related

 

expenses.

 

     (f) "Student loan borrower" means either of the following:

 

     (i) A resident of this state who has received or agreed to pay

 

a student education loan.

 

     (ii) Any person that shares responsibility with an individual

 

described in subparagraph (i) for repaying his or her student

 

education loan.

 

     (g) "Student loan servicer" means any person, wherever

 

located, that is responsible for the servicing of any student

 

education loan to any student loan borrower. The term includes a

 

person that is required to obtain a license under this act or is

 

exempt from the licensing requirements of this act under section 7.

 

     Sec. 5. (1) Subject to section 7, a person shall not act as a

 

student loan servicer, directly or indirectly, without first


obtaining a license from the director under this section.

 

     (2) A person that is applying for an initial license under

 

this act to engage in the business of a student loan servicer in

 

this state shall submit a written application to the director, in

 

the form prescribed by the director, and include each of the

 

following with that application:

 

     (a) The applicant's financial statements, audited or reviewed

 

by an independent certified public accountant.

 

     (b) A history of criminal convictions of each of the

 

following, as applicable:

 

     (i) The applicant, if the applicant is an individual.

 

     (ii) Each partner, if the applicant is a partnership.

 

     (iii) Each member, if the applicant is a limited liability

 

company or association.

 

     (iv) Each officer, director, and principal employee, if the

 

applicant is a corporation.

 

     (c) Any information pertaining to a history of criminal

 

convictions provided under subdivision (b) that the director

 

considers necessary to determine whether to issue a license to the

 

applicant under section 9. The director may also conduct a criminal

 

history check of any individual described in subdivision (b) in

 

connection with that determination.

 

     (d) A nonrefundable license fee of $1,000.00.

 

     (e) A nonrefundable investigation fee of $800.00.

 

     (3) The student loan servicer regulatory fund is created in

 

the state treasury. All of the following apply to the student loan

 

servicer regulatory fund:


     (a) Except as provided in section 29, licensing and

 

investigation fees received under this act shall be forwarded to

 

the state treasurer for deposit into the fund.

 

     (b) The director shall use the money in the fund to administer

 

and enforce this act.

 

     (c) The state treasurer shall direct the investment of the

 

fund and shall credit to the fund interest and earnings from fund

 

investments.

 

     (d) Money in the fund at the close of the fiscal year shall

 

remain in the fund and shall not lapse to the general fund.

 

     (e) The department is the administrator of the fund for

 

auditing purposes.

 

     Sec. 7. The following persons are exempt from the licensing

 

requirements of this act:

 

     (a) A depository institution.

 

     (b) A wholly owned subsidiary of a depository institution.

 

     (c) An operating subsidiary that is wholly owned by 1 or more

 

subsidiaries described in subdivision (b).

 

     Sec. 9. If the director receives a completed application and

 

the license and investigation fees for an initial license under

 

this act, the director shall investigate the financial condition

 

and responsibility, financial and business experience, character,

 

and general fitness of the applicant and may issue a license if he

 

or she finds that all of the following are met:

 

     (a) The applicant's financial condition is sound.

 

     (b) The applicant's business will be conducted honestly,

 

fairly, equitably, carefully, and efficiently within the purposes


and intent of this act, and in a manner that commands the

 

confidence and trust of the community.

 

     (c) Each of the following, as applicable:

 

     (i) If the applicant is an individual, the applicant.

 

     (ii) If the applicant is a partnership, each partner.

 

     (iii) If the applicant is a corporation, each of the

 

following:

 

     (A) The president.

 

     (B) The chairperson of the executive committee.

 

     (C) Each senior officer who is responsible for the

 

corporation's business.

 

     (D) The chief financial officer.

 

     (E) Any other individuals who perform similar functions to

 

those performed by an individual described in sub-subparagraphs (A)

 

to (D), as determined by the director.

 

     (F) Each of the corporation's directors or trustees.

 

     (G) Each shareholder that owns 10% or more of each class of

 

the securities of the corporation.

 

     (iv) If the applicant is a limited liability company or

 

association, each member.

 

     (d) No individual acting on behalf of the applicant has

 

knowingly made any incorrect statement of a material fact in the

 

application or in any report or statement made under this act.

 

     (e) No individual acting on behalf of the applicant has

 

knowingly omitted to state any material fact necessary to give the

 

director any information that the director has lawfully requested

 

under this act.


     (f) The applicant has paid the investigation fee and the

 

license fee required under section 5(2).

 

     (g) The applicant has met any other similar requirements as

 

established by the director by rule.

 

     Sec. 11. (1) A license issued under this act expires on

 

September 30 of the odd-numbered year following its issuance,

 

unless the license is renewed or earlier surrendered, suspended, or

 

revoked under this act.

 

     (2) Within 15 days after a licensee ceases to engage in the

 

business of student loan servicing in this state for any reason,

 

including a business decision to terminate operations in this

 

state, license revocation, bankruptcy, or voluntary dissolution,

 

the licensee shall provide written notice of surrender to the

 

director and shall surrender to the director its license for each

 

location in which the licensee has ceased to engage in the business

 

of student loan servicing. The written notice of surrender shall

 

identify the location where the records of the licensee will be

 

stored and the name, address, and telephone number of an individual

 

who is authorized to provide access to the records. The surrender

 

of a license does not reduce or eliminate the licensee's civil or

 

criminal liability arising from acts or omissions occurring before

 

the surrender of the license, including any administrative actions

 

undertaken by the director to revoke or suspend a license, assess a

 

civil penalty, order restitution, or exercise any other authority

 

granted to the director under this act.

 

     Sec. 13. (1) A licensee may renew a license for the ensuing

 

24-month period by filing an application with the director, that


includes all of the documents and fees described in section 5(2)

 

for an initial license, on or before the date the current license

 

expires. However, if the director receives the completed

 

application after September 1 of the year in which the current

 

license expires, the applicant for renewal shall pay an additional

 

$100.00 late fee.

 

     (2) If the director receives a completed application for a

 

renewal license on or before the date the current license expires,

 

the current license continues in full force and effect until the

 

date that 1 of the following occurs:

 

     (a) The director issues a renewal license.

 

     (b) The director notifies the licensee in writing that he or

 

she refuses to issue a renewal license and the grounds for that

 

refusal. The director may refuse to issue a renewal license on any

 

ground on which he or she may refuse to issue an initial license

 

under section 5.

 

     Sec. 15. (1) If the director determines that a check submitted

 

to him or her to pay an investigation, license, renewal, or late

 

fee has been dishonored, the director shall automatically suspend

 

the applicant's current license and an applicant's renewal license,

 

if any, that has been issued but is not yet effective. The director

 

shall give the licensee notice of the automatic suspension pending

 

proceedings for revocation or refusal to renew and the licensee is

 

entitled to a hearing on those actions, conducted under the

 

administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to

 

24.328.

 

     (2) An applicant or licensee shall notify the director, in


writing, if any of the information provided in its initial

 

application for a license or its most recent application for a

 

renewal license, as applicable, is no longer accurate. The

 

applicant or licensee shall provide this notice to the director

 

within 10 business days after the occurrence of the event that

 

resulted in the information previously provided becoming

 

inaccurate.

 

     (3) The director may consider an application for an initial or

 

renewal license abandoned if the applicant fails to respond to any

 

request for information required under this act or any rules

 

promulgated under this act. The director shall notify the

 

applicant, in writing, that if the applicant fails to submit the

 

information requested within 60 days after the date on which the

 

request for information is made, the application is considered

 

abandoned. An applicant that paid an application filing fee paid

 

before the date an application is considered abandoned under this

 

subsection shall not receive a refund of that fee. Abandonment of

 

an application under this subsection does not preclude the

 

applicant from submitting a new application for a license under

 

this act.

 

     Sec. 17. (1) A person that is licensed under this act to

 

engage in business as a student loan servicer shall not engage in

 

that business in this state under any other name or at any other

 

place of business than the name or address described in the

 

license.

 

     (2) A licensee may change the location of its place of

 

business if it provides the director with written notice at least


60 days before the change of location.

 

     (3) A licensee may conduct business as a student loan servicer

 

at only 1 location under a single license, but the director may

 

issue more than 1 license to the same licensee if the licensee

 

complies with the requirements of this act for each new license.

 

     (4) A license under this act is not transferable or

 

assignable.

 

     Sec. 19. (1) A student loan servicer shall maintain adequate

 

records of each student education loan transaction during the term

 

of the loan and for at least 2 years following the date of the

 

final payment on the student education loan, or until the date of

 

the assignment of the student education loan, whichever occurs

 

first, or for any longer period required under any other provision

 

of law.

 

     (2) If requested by the director, a student loan servicer

 

shall make the records described in subsection (1) available to the

 

director, or send those records to the director by registered or

 

certified mail, return receipt requested, or by any express

 

delivery carrier that provides a dated delivery receipt, within 5

 

business days after the director requests access to those records.

 

On request, the director may grant a licensee additional time to

 

make those records available or send the records to the director.

 

     Sec. 21. A student loan servicer shall not do any of the

 

following:

 

     (a) Directly or indirectly employ any scheme, device, or

 

artifice to defraud or mislead student loan borrowers.

 

     (b) Engage in any unfair or deceptive practice toward any


person or misrepresent or omit any material information in

 

connection with the servicing of a student education loan,

 

including, but not limited to, misrepresenting the amount, nature,

 

or terms of any fee or payment due or claimed to be due on a

 

student education loan, the terms and conditions of the loan

 

agreement, or the borrower's obligations under the loan.

 

     (c) Obtain property by fraud or misrepresentation.

 

     (d) Knowingly misapply or recklessly apply student education

 

loan payments to the outstanding balance of a student education

 

loan.

 

     (e) Harm a student loan borrower's creditworthiness by

 

knowingly or recklessly providing inaccurate information to a

 

credit reporting agency.

 

     (f) Fail to report both the favorable and unfavorable payment

 

history of a student loan borrower to a nationally recognized

 

credit reporting agency at least annually if the student loan

 

servicer regularly reports information to a credit reporting

 

agency.

 

     (g) Refuse to communicate with an authorized representative of

 

the student loan borrower who provides a written authorization

 

signed by the student loan borrower. However, a student loan

 

servicer may adopt procedures reasonably related to verifying that

 

a representative is in fact authorized to act on behalf of a

 

student loan borrower.

 

     (h) Negligently make any false statement or knowingly and

 

willfully make any omission of a material fact in connection with

 

any information or reports filed with a governmental agency or in


connection with any investigation conducted by the director, the

 

department, or another governmental agency.

 

     (i) Fail or neglect to comply with all applicable federal

 

statutes and regulations relating to student loan servicing,

 

including, but not limited to, the truth in lending act, 15 USC

 

1601 to 1667f, and the regulations promulgated under that act, 12

 

CFR part 226.

 

     Sec. 23. (1) The director's authority to conduct

 

investigations and examinations of license applicants, licensed

 

student loan servicers, or other student loan servicers under this

 

act is subject to all of the following:

 

     (a) For purposes of initial licensing, license renewal,

 

license suspension, license revocation or termination, or general

 

or specific inquiry or investigation to determine compliance with

 

this act, the director may access, receive, and use any books,

 

accounts, records, files, documents, information, or evidence,

 

including, but not limited to, any of the following:

 

     (i) Criminal, civil, and administrative history information.

 

     (ii) Personal history and experience information, including

 

independent credit reports obtained from a consumer reporting

 

agency described in section 603(p) of the fair credit reporting

 

act, 15 USC 1681a.

 

     (iii) Any other documents, information, or evidence the

 

director considers relevant to the inquiry or investigation

 

regardless of the location, possession, control, or custody of the

 

documents, information, or evidence.

 

     (b) For the purposes of investigating violations or complaints


arising under this act or for the purposes of examination, the

 

director may review, investigate, or examine any student loan

 

servicer licensee or other person that is subject to this act as

 

often as necessary in order to carry out the purposes of this act.

 

The director may direct, subpoena, or order the attendance of and

 

examine under oath any individual whose testimony is required about

 

a student education loan, the business of a student loan servicer,

 

or the subject matter of an examination or investigation and may

 

direct, subpoena, or order that individual to produce books,

 

accounts, records, files, and any other documents the director

 

considers relevant to the inquiry.

 

     (2) While conducting an examination or investigation under

 

this act, the director may control access to any documents and

 

records of the student loan servicer licensee or other person that

 

is the subject of the examination or investigation. The director

 

may take possession of the documents and records or place an

 

individual in exclusive charge of the documents and records in the

 

place where they are usually kept. If the director is in control of

 

documents and records under this subsection, a person shall not

 

remove or attempt to remove any of the documents and records except

 

pursuant to a court order or with the consent of the director.

 

Unless the director has reasonable grounds to believe the documents

 

or records of the student loan servicer licensee or other person

 

have been, or are at risk of being, altered or destroyed for

 

purposes of concealing a violation of this act, the student loan

 

servicer licensee or other owner of the documents and records shall

 

have access to the documents or records as necessary to conduct its


ordinary business affairs.

 

     (3) For purposes of this section, the director may do any of

 

the following:

 

     (a) Retain attorneys, accountants, or other professionals and

 

specialists as examiners, auditors, or investigators to conduct or

 

assist in the conduct of examinations or investigations.

 

     (b) Enter into agreements or relationships with other

 

government officials or regulatory associations in order to improve

 

efficiencies and reduce regulatory burden by sharing resources,

 

standardized or uniform methods or procedures, and documents,

 

records, information, or evidence obtained under this section.

 

     (c) Use, hire, contract, or employ public or privately

 

available analytical systems, methods, or software to examine or

 

investigate a student loan servicer licensee, a student loan

 

servicer that is exempt from licensure under section 7, or any

 

other person that is subject to this act.

 

     (d) Accept and rely on examination or investigation reports

 

made by other local, state, or federal government officials.

 

     (e) Accept audit reports made by an independent certified

 

public accountant for a student loan servicer licensee, a student

 

loan servicer that is exempt from licensure under section 7, or any

 

other person that is subject to this act, in the course of

 

conducting that part of the examination that covers the same

 

general subject matter as the audit; and incorporate the audit

 

report in the report of examination, report of investigation, or

 

other writing of the director.

 

     (4) A student loan servicer licensee, a student loan servicer


that is exempt from licensure under section 7, or any other person

 

that is subject to investigation or examination under this section

 

shall not knowingly withhold, abstract, remove, mutilate, destroy,

 

or secrete any books, records, computer records, or other

 

information.

 

     Sec. 25. (1) After notice and opportunity for a hearing under

 

the administrative procedures act of 1969, 1969 PA 306, MCL 24.201

 

to 24.328, the director may suspend, revoke, or refuse to renew a

 

license issued under this act, require the payment of restitution

 

by a licensee, or impose an administrative fine on a licensee in an

 

amount that does not exceed $3,000.00 if the director finds either

 

of the following:

 

     (a) That a licensee has violated this act or a rule

 

promulgated under this act.

 

     (b) That a fact or condition exists that, if it had existed at

 

the time of the original application for the license, clearly would

 

have warranted a denial of the license.

 

     (2) A licensee shall not receive a refund of any part of the

 

license fee if a license is surrendered, revoked, or suspended

 

under subsection (1) before the expiration of the period for which

 

it was issued.

 

     (3) In addition to any sanction under subsection (1) if the

 

person is a licensee, a student loan servicer that is licensed

 

under this act, a student loan servicer that is exempt from

 

licensure under section 7, or any other person that violates this

 

act or directly or indirectly counsels, aids, or abets in a

 

violation is responsible for a civil fine of not more than


$3,000.00 for each violation. The civil fine shall be sued for and

 

recovered by the director and shall be collected and enforced by

 

summary proceedings by the attorney general.

 

     Sec. 27. The director shall promulgate rules under the

 

administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to

 

24.328, as necessary to implement, administer, and enforce this

 

act.

 

     Sec. 29. On or before January 1 of each year beginning in

 

2019, the director shall submit a report to the senate and house

 

standing committees with oversight over matters relating to banking

 

and higher education. The report shall address the implementation

 

of this act and any additional steps that the director considers

 

necessary for the department to gain regulatory control over the

 

licensing and enforcement of student loan servicers under this act.

 

     Enacting section 1. This act takes effect 90 days after the

 

date it is enacted into law.

 

     Enacting section 2. This act does not take effect unless

 

Senate Bill No.____ or House Bill No. 6446 (request no. 06646'18) of

 

the 99th Legislature is enacted into law.