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Maine Enacts Student Loan Servicing Law

We can add Maine to the list of states to have enacted a “Student Loan Bill of Rights” that requires student loan servicers to be licensed. On June 20th, Maine Governor Janet Mills signed into law LD 995, “An Act To Establish a Student Loan Bill of Rights To License and Regulate Student Loan Servicers,” a bill which the legislature had passed unanimously.

The law completely exempts from its coverage supervised financial organizations, financial institution holding companies, mutual holding companies, and their wholly- owned subsidiaries. Certain other entities, including licensed banks and credit unions (and their respective wholly-owned subsidiaries) as well as the Finance Authority of Maine, are exempt from licensing but not from the substantive requirements of the law.

Notably, it appears that, upon application, any entity servicing student loans for the federal government under a contract with the Department of Education is to be automatically granted a “limited irrevocable license.” However, the law goes on to state that the grant of such a license does not preclude the Superintendent of Consumer Credit Protection from issuing a cease and desist order or injunction for violations of the new law.

Student loan servicers must comply with a number of requirements, including:

  • Responding to written borrower inquiries within 30 days;

  • Conferring with borrowers with respect to the application of non-conforming payments;

  • Following certain requirements in connection with loans that are sold, assigned, or transferred to a different servicer;

  • Adopting policies and procedures to verify receipt of all relevant account information regarding each student loan borrower, and

  • Not engaging in an extensive list of prohibited acts, including employing any scheme, device or artifice to defraud or mislead student loan borrowers.

Failure to comply with the statute’s requirements and prohibitions applicable to student loan servicers is deemed an unfair trade practices under the Maine Unfair Trade Practices Act, which would appear to have the effect of creating a private right of action for aggrieved borrowers.

The law also calls for the Superintendent of Consumer Credit Protection within the Department of Professional and Financial Regulation to “support, maintain and designate a student loan ombudsman.” The Ombudsman will be charged with receiving, reviewing, and attempting to resolve complaints from borrowers. Additional duties include providing information to the public, agencies and legislators regarding concerns of student loan borrowers and making recommendations to resolve them.

Included in the law is a directive for the Superintendent to adopt rules to implement this new legislation. While the law’s effective date is January 1, 2020, no timeline is provided indicating when we can expect the adoption of such rules.

Ultimately, this law is not markedly different from what we have seen passed in a variety of other states, the most recent other than Maine being Colorado, which enacted a servicer licensing law last month. But, this most recent enactment is further evidence of a trend that shows no signs of slowing down, with additional bills pending in various other legislatures.

Copyright © by Ballard Spahr LLP

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About this Author

Jeremy Sairsingh, philadelphia office Ballard Spahr, business, lawyer
Associate

Jeremy C. Sairsingh is an associate in the Business and Finance Department and a member of the firm's Consumer Financial Services Group. His practice focuses on providing regulatory advice to clients on state and federal consumer finance laws.

He regularly assists clients with a wide variety of compliance and transactional matters, and works with clients in a range of industries, including depository institutions, credit card issuers, online lending platforms, student lenders and servicers, solar and home improvement finance companies, and...

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