HF 1424

3rd Engrossment - 91st Legislature (2019 - 2020) Posted on 03/11/2020 12:09pm

A bill for an act
relating to commerce; establishing a student loan advocate; requiring licensure of
student loan servicers; prohibiting certain practices in student loan servicing;
requiring a report; appropriating money; amending Minnesota Statutes 2018,
section 13.712, by adding a subdivision; proposing coding for new law as Minnesota
Statutes, chapter 58B.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2018, section 13.712, is amended by adding a subdivision
to read:

new text begin Subd. 7. new text end

new text begin Student loan servicers. new text end

new text begin Data collected, created, received, maintained, or
disseminated under chapter 58B are governed by section 58B.11.
new text end

Sec. 2.

new text begin [58B.01] DEFINITIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Scope. new text end

new text begin For the purposes of this chapter, the following terms have the
meanings given them.
new text end

new text begin Subd. 2. new text end

new text begin Borrower. new text end

new text begin "Borrower" means a resident of this state who has received or agreed
to pay a student loan or a person who shares responsibility with a resident for repaying a
student loan.
new text end

new text begin Subd. 3. new text end

new text begin Commissioner. new text end

new text begin "Commissioner" means the commissioner of commerce.
new text end

new text begin Subd. 4. new text end

new text begin Financial institution. new text end

new text begin "Financial institution" means any of the following
organized under the laws of this state, any other state, or the United States: a bank, bank
and trust, trust company with banking powers, savings bank, savings association, or credit
union.
new text end

new text begin Subd. 5. new text end

new text begin Person in control. new text end

new text begin "Person in control" means any member of senior
management, including owners or officers, and other persons who possess, directly or
indirectly, the power to direct or cause the direction of the management policies of an
applicant or student loan servicer under this chapter, regardless of whether the person has
any ownership interest in the applicant or student loan servicer. Control is presumed to exist
if a person, directly or indirectly, owns, controls, or holds with power to vote ten percent
or more of the voting stock of an applicant or student loan servicer or of a person who owns,
controls, or holds with power to vote ten percent or more of the voting stock of an applicant
or student loan servicer.
new text end

new text begin Subd. 6. new text end

new text begin Servicing. new text end

new text begin "Servicing" means:
new text end

new text begin (1) receiving any scheduled periodic payments from a borrower or notification of
payments, and applying payments to the borrower's account pursuant to the terms of the
student loan or of the contract governing servicing;
new text end

new text begin (2) during a period when no payment is required on a student loan, maintaining account
records for the loan and communicating with the borrower regarding the loan, on behalf of
the loan's holder; and
new text end

new text begin (3) interacting with a borrower, including activities to help prevent default on obligations
arising from student loans, conducted to facilitate the requirements in clauses (1) and (2).
new text end

new text begin Subd. 7. new text end

new text begin Student loan. new text end

new text begin "Student loan" means a government, commercial, or foundation
loan for actual costs paid for tuition and reasonable education and living expenses.
new text end

new text begin Subd. 8. new text end

new text begin Student loan servicer. new text end

new text begin "Student loan servicer" means any person, wherever
located, responsible for the servicing of any student loan to any borrower, including a
nonbank covered person, as defined in Code of Federal Regulations, title 12, section
1090.101, who is responsible for the servicing of any student loan to any borrower.
new text end

Sec. 3.

new text begin [58B.02] STUDENT LOAN ADVOCATE.
new text end

new text begin Subdivision 1. new text end

new text begin Designation of a student loan advocate. new text end

new text begin The attorney general shall
designate a student loan advocate within the Office of the Attorney General to provide
timely assistance to borrowers and to effectuate this chapter.
new text end

new text begin Subd. 2. new text end

new text begin Duties. new text end

new text begin The student loan advocate shall have the following duties:
new text end

new text begin (1) receive, review, and attempt to resolve complaints from borrowers, including but
not limited to attempts to resolve such complaints in collaboration with institutions of higher
education, student loan servicers, and any other participants in student loan lending;
new text end

new text begin (2) compile and analyze data on borrower complaints received under clause (1);
new text end

new text begin (3) help borrowers understand their rights and responsibilities under the terms of student
loans;
new text end

new text begin (4) provide information to the public, state agencies, legislators, and relevant stakeholders
regarding the problems and concerns of borrowers;
new text end

new text begin (5) make recommendations for resolving the problems of borrowers;
new text end

new text begin (6) analyze and monitor the development and implementation of federal, state, and local
laws, regulations, and policies relating to borrowers and recommend any changes deemed
necessary;
new text end

new text begin (7) review the complete student loan history for any borrower who has provided written
consent for such review;
new text end

new text begin (8) increase public awareness that the advocate is available to assist in the resolution of
the student loan servicing concerns of potential and actual borrowers, institutions of higher
education, student loan servicers, and any other participant in student lending; and
new text end

new text begin (9) take other actions, as necessary, to fulfill the duties of the advocate set forth in this
section.
new text end

new text begin Subd. 3. new text end

new text begin Student loan education course. new text end

new text begin The advocate must establish and maintain a
borrower education course. The course shall include educational presentations and materials
regarding important topics in student loans, including but not limited to:
new text end

new text begin (1) the meaning of important terminology used in student lending;
new text end

new text begin (2) documentation requirements;
new text end

new text begin (3) monthly payment obligations;
new text end

new text begin (4) income-based repayment options;
new text end

new text begin (5) the availability of state and federal loan forgiveness programs; and
new text end

new text begin (6) disclosure requirements.
new text end

new text begin Subd. 4. new text end

new text begin Reporting. new text end

new text begin By January 15 of each odd-numbered year, the advocate must report
to the legislative committees with jurisdiction over commerce and higher education. The
report must describe the advocate's implementation of this section, the outcomes achieved
by the advocate in the previous two years, and recommendations for improving the regulation
of student loan servicers.
new text end

Sec. 4.

new text begin [58B.03] LICENSING OF STUDENT LOAN SERVICERS.
new text end

new text begin Subdivision 1. new text end

new text begin License required. new text end

new text begin No person shall directly or indirectly act as a student
loan servicer without first obtaining a license from the commissioner.
new text end

new text begin Subd. 2. new text end

new text begin Exempt persons. new text end

new text begin The following persons are exempt from the requirements of
this chapter:
new text end

new text begin (1) a financial institution;
new text end

new text begin (2) a person servicing student loans made with the person's own funds, if no more than
three such student loans are made in any 12-month period;
new text end

new text begin (3) an agency, instrumentality, or political subdivision of this state that makes, services,
or guarantees student loans;
new text end

new text begin (4) a person acting in a fiduciary capacity, such as a trustee or receiver, as a result of a
specific order issued by a court of competent jurisdiction;
new text end

new text begin (5) the University of Minnesota; or
new text end

new text begin (6) a person exempted by order of the commissioner.
new text end

new text begin Subd. 3. new text end

new text begin Application for licensure. new text end

new text begin (a) Any person seeking to act within the state as a
student loan servicer must apply for a license in a form and manner specified by the
commissioner. At a minimum, the application must include:
new text end

new text begin (1) a financial statement prepared by a certified public accountant or a public accountant;
new text end

new text begin (2) the history of criminal convictions, excluding traffic violations, for persons in control
of the applicant;
new text end

new text begin (3) any information requested by the commissioner related to the history of criminal
convictions disclosed under clause (2);
new text end

new text begin (4) a nonrefundable license fee established by the commissioner; and
new text end

new text begin (5) a nonrefundable investigation fee established by the commissioner.
new text end

new text begin (b) The commissioner may conduct a state and national criminal history records check
of the applicant and of each person in control or employee of the applicant.
new text end

new text begin Subd. 4. new text end

new text begin Issuance of a license. new text end

new text begin Upon receipt of a complete application for an initial
license and the payment of fees for a license and investigation, the commissioner must
investigate the financial condition and responsibility, character, financial and business
experience, and general fitness of the applicant. The commissioner may issue a license if
the commissioner finds that:
new text end

new text begin (1) the applicant's financial condition is sound;
new text end

new text begin (2) the applicant's business will be conducted honestly, fairly, equitably, carefully, and
efficiently within the purposes and intent of this section;
new text end

new text begin (3) each person in control of the applicant is in all respects properly qualified and of
good character;
new text end

new text begin (4) no person, 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 pursuant to this
section;
new text end

new text begin (5) no person, on behalf of the applicant, has knowingly omitted from an application,
report, or statement made pursuant to this section, any information required by the
commissioner;
new text end

new text begin (6) the applicant has paid the fees required under this section; and
new text end

new text begin (7) the application has met other similar requirements, as determined by the commissioner.
new text end

new text begin Subd. 5. new text end

new text begin Notification of a change in status. new text end

new text begin An applicant or student loan servicer must
notify the commissioner in writing of any change in the information provided in its initial
application for a license or its most recent renewal application for such a license. This
notification must be received no later than ten business days after an event that results in
the information becoming inaccurate.
new text end

new text begin Subd. 6. new text end

new text begin Term of license. new text end

new text begin Licenses issued under this chapter expire on December 31
and are renewable on January 1.
new text end

new text begin Subd. 7. new text end

new text begin Exemption from application. new text end

new text begin (a) A person is exempt from the application
procedures under subdivision 3 if the commissioner determines that the person is servicing
student loans in this state pursuant to a contract awarded by the United States Secretary of
Education under United States Code, title 20, section 1087f. Documentation of eligibility
for this exemption shall be in a form and manner determined by the commissioner.
new text end

new text begin (b) A person determined to be eligible for the exemption under paragraph (a) shall, upon
payment of the fees under subdivision 3, be issued a license and deemed to meet all of the
requirements of subdivision 4.
new text end

new text begin Subd. 8. new text end

new text begin Notice. new text end

new text begin (a) A person issued a license under subdivision 7 must provide the
commissioner with written notice no less than seven days after the person's contract under
United States Code, title 20, section 1087f, expires, is revoked, or is terminated.
new text end

new text begin (b) A person issued a license under subdivision 7 has 30 days from the date the
notification under paragraph (a) is provided to complete the requirements of subdivision 3.
If a person does not meet the requirements of subdivision 3 within this time period, the
commissioner shall immediately suspend the person's license under this chapter.
new text end

Sec. 5.

new text begin [58B.04] LICENSING MULTIPLE PLACES OF BUSINESS.
new text end

new text begin (a) A person licensed to act within the state as a student loan servicer may not do so
under any other name or at any other place of business than that named in the license. Any
time a student loan servicer changes the location of the servicer's place of business, the
servicer must provide prior written notice to the commissioner. A student loan servicer may
not maintain more than one place of business under the same license. The commissioner
may issue more than one license to the same student loan servicer, provided that the servicer
complies with the application procedures in section 58B.03 for each license.
new text end

new text begin (b) A license issued under this chapter is not transferable or assignable.
new text end

Sec. 6.

new text begin [58B.05] LICENSE RENEWAL.
new text end

new text begin Subdivision 1. new text end

new text begin Term. new text end

new text begin Licenses are renewable on January 1 of each year.
new text end

new text begin Subd. 2. new text end

new text begin Timely renewal. new text end

new text begin (a) A person whose application is properly and timely filed
who has not received notice of denial of renewal is considered approved for renewal. The
person may continue to act as a student loan servicer whether or not the renewed license
has been received on or before January 1 of the renewal year. Application for renewal of a
license is considered timely filed if received by the commissioner, or mailed with proper
postage and postmarked, by the December 15 before the renewal year. An application for
renewal is considered properly filed if made upon forms duly executed, accompanied by
fees prescribed by this chapter, and containing any information that the commissioner
requires.
new text end

new text begin (b) A person who fails to make a timely application for renewal of a license and who
has not received the renewal license as of January 1 of the renewal year is unlicensed until
the renewal license has been issued by the commissioner and is received by the person.
new text end

new text begin Subd. 3. new text end

new text begin Contents of renewal application. new text end

new text begin Application for the renewal of an existing
license must contain the information specified in section 58B.03, subdivision 3, however,
only the requested information having changed from the most recent prior application need
be submitted.
new text end

new text begin Subd. 4. new text end

new text begin Cancellation. new text end

new text begin A student loan servicer ceasing an activity or activities regulated
by this chapter and desiring to no longer be licensed shall inform the commissioner in writing
and, at the same time, surrender the license and all other symbols or indicia of licensure.
The licensee shall include a plan for the withdrawal from student loan servicing, including
a timetable for the disposition of the student loans being serviced.
new text end

new text begin Subd. 5. new text end

new text begin Renewal fees. new text end

new text begin The following fees must be paid to the commissioner for a
renewal license:
new text end

new text begin (1) a nonrefundable renewal license fee established by the commissioner; and
new text end

new text begin (2) a nonrefundable renewal investigation fee established by the commissioner.
new text end

Sec. 7.

new text begin [58B.06] DUTIES OF STUDENT LOAN SERVICERS.
new text end

new text begin Subdivision 1. new text end

new text begin Response requirements. new text end

new text begin Upon receiving a written communication from
a borrower, a student loan servicer must:
new text end

new text begin (1) acknowledge receipt of the communication in less than ten days; and
new text end

new text begin (2) provide information relating to the communication and, if applicable, the action the
student loan servicer will take to either (i) correct the borrower's issue or (ii) explain why
the issue cannot be corrected. This information must be provided less than 30 days from
the date the written communication was received by the student loan servicer.
new text end

new text begin Subd. 2. new text end

new text begin Overpayments. new text end

new text begin A student loan servicer must ask a borrower in what manner
the borrower would like any overpayment, meaning a payment on a student loan that exceeds
the monthly amount due, to be applied to a student loan. A borrower's instruction regarding
the application of overpayments is effective for the term of the loan, or until the borrower
provides a different instruction.
new text end

new text begin Subd. 3. new text end

new text begin Partial payments. new text end

new text begin A student loan servicer must apply a partial payment,
meaning a payment that is less than the amount due on a student loan, in a manner intended
to minimize late fees and the negative impact on the borrower's credit history. If a borrower
has multiple student loans with the same student loan servicer, upon receipt of a partial
payment the servicer must apply the payments to satisfy as many individual loan payments
as possible.
new text end

new text begin Subd. 4. new text end

new text begin Transfer of student loan. new text end

new text begin (a) If a borrower's student loan servicer changes
pursuant to the sale, assignment, or transfer of the servicing, the original student loan servicer
must:
new text end

new text begin (1) require the new student loan servicer to honor all benefits that were made available,
or which may have become available, to a borrower from the original student loan servicer;
and
new text end

new text begin (2) transfer to the new student loan servicer all information regarding the borrower, the
account of the borrower, and the borrower's student loan, including, but not limited to, the
repayment status of the student loan and the benefits described in clause (1).
new text end

new text begin (b) The student loan servicer must complete the transfer under clause (2) less than 45
days from the date the of the sale, assignment, or transfer of the servicing.
new text end

new text begin (c) A sale, assignment, or transfer of the servicing must be completed no less than seven
days from the date the next payment is due on the student loan.
new text end

new text begin (d) A new student loan servicer must adopt policies and procedures to verify that the
original student loan servicer has met the requirements of paragraph (a).
new text end

new text begin Subd. 5. new text end

new text begin Income-driven repayment. new text end

new text begin A student loan servicer must evaluate a borrower
for eligibility for an income-driven repayment program before placing a borrower in
forbearance or default.
new text end

new text begin Subd. 6. new text end

new text begin Records. new text end

new text begin A student loan servicer must maintain adequate records of each student
loan for not less than two years following the final payment on the student loan or the sale,
assignment, or transfer of the servicing.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2020, and applies to student loan
contracts executed on or after that date.
new text end

Sec. 8.

new text begin [58B.07] PROHIBITED CONDUCT.
new text end

new text begin Subdivision 1. new text end

new text begin Misleading borrowers. new text end

new text begin A student loan servicer must not directly or
indirectly attempt to mislead a borrower.
new text end

new text begin Subd. 2. new text end

new text begin Misrepresentation. new text end

new text begin A student loan servicer must not engage in any unfair or
deceptive practice or misrepresent or omit any material information in connection with the
servicing of a student 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 loan, the terms and
conditions of the loan agreement, or the borrower's obligations under the loan.
new text end

new text begin Subd. 3. new text end

new text begin Misapplication of payments. new text end

new text begin A student loan servicer must not knowingly or
negligently misapply student loan payments.
new text end

new text begin Subd. 4. new text end

new text begin Inaccurate information. new text end

new text begin A student loan servicer must not knowingly or
negligently provide inaccurate information to any consumer reporting agency.
new text end

new text begin Subd. 5. new text end

new text begin Reporting of payment history. new text end

new text begin A student loan servicer must not fail to report
both the favorable and unfavorable payment history of the borrower to a consumer reporting
agency at least annually, if the student loan servicer regularly reports such information.
new text end

new text begin Subd. 6. new text end

new text begin Refusal to communicate with a borrower's representative. new text end

new text begin A student loan
servicer must not refuse to communicate with a representative of the borrower who provides
a written authorization signed by the borrower, provided the student loan servicer may adopt
procedures reasonably related to verifying that the representative is in fact authorized to act
on behalf of the borrower.
new text end

new text begin Subd. 7. new text end

new text begin False statements and omissions. new text end

new text begin A student loan servicer must not knowingly
or negligently make any false statement or omission of material fact in connection with any
application, information, or reports filed with the commissioner or any other federal, state,
or local government agency.
new text end

new text begin Subd. 8. new text end

new text begin Noncompliance with applicable laws. new text end

new text begin A student loan servicer must not violate
any other federal, state, or local laws, including those related to fraudulent, coercive, or
dishonest practices.
new text end

new text begin Subd. 9. new text end

new text begin Failure to respond to advocate. new text end

new text begin (a) A student loan servicer must respond in
less than 15 days from receipt of a communication from the student loan advocate. This
response period may be reasonably shortened by the advocate in their communication.
new text end

new text begin (b) A student loan servicer must provide a response in less than 15 days from receipt of
a consumer complaint submitted to the servicer by the student loan advocate. A student
loan servicer may request from the advocate an extension of up to 45 days from receipt of
the consumer complaint, if accompanied by an explanation of why additional time is
reasonable and necessary.
new text end

new text begin Subd. 10. new text end

new text begin Incorrect information regarding student loan forgiveness. new text end

new text begin A student loan
servicer must not misrepresent the availability of student loan forgiveness for which the
servicer has reason to know the borrower is eligible. This includes but is not limited to
student loan forgiveness programs specific to military borrowers, borrowers working in
public service, or borrowers with disabilities.
new text end

new text begin Subd. 11. new text end

new text begin Compliance with servicer duties. new text end

new text begin A student loan servicer must comply with
its duties and obligations under section 58B.06.
new text end

Sec. 9.

new text begin [58B.08] EXAMINATIONS.
new text end

new text begin The commissioner has under this chapter the same powers with respect to examinations
of student loan servicers that the commissioner has under section 46.04.
new text end

Sec. 10.

new text begin [58B.09] DENIAL, SUSPENSION, REVOCATION OF LICENSES.
new text end

new text begin Subdivision 1. new text end

new text begin Powers of commissioner. new text end

new text begin (a) The commissioner may by order take any
or all of the following actions:
new text end

new text begin (1) bar a person from engaging in student loan servicing;
new text end

new text begin (2) deny, suspend, or revoke a student loan servicer license;
new text end

new text begin (3) censure a student loan servicer;
new text end

new text begin (4) impose a civil penalty as provided in section 45.027, subdivision 6; or
new text end

new text begin (5) revoke an exemption.
new text end

new text begin (b) In order to take the action in paragraph (a), the commissioner must find:
new text end

new text begin (1) that the order is in the public interest; and
new text end

new text begin (2) that the student loan servicer, applicant, person in control, employee, or agent has:
new text end

new text begin (i) violated any provision of this chapter or rule or order under this chapter;
new text end

new text begin (ii) violated a standard of conduct or engaged in a fraudulent, coercive, deceptive, or
dishonest act or practice, whether or not the act or practice involves student loan servicing,
including but not limited to negligently making a false statement or knowingly omitting a
material fact;
new text end

new text begin (iii) engaged in an act or practice, whether or not the act or practice involves student
loan servicing, that demonstrates untrustworthiness, financial irresponsibility, or
incompetence;
new text end

new text begin (iv) pled guilty or nolo contendere to or been convicted of a felony, gross misdemeanor,
or misdemeanor;
new text end

new text begin (v) paid a civil penalty or been the subject of disciplinary action by the commissioner,
an order of suspension or revocation, cease and desist order, injunction order, or order
barring involvement in an industry or profession issued by the commissioner or any other
federal, state, or local government agency;
new text end

new text begin (vi) been found by a court of competent jurisdiction to have engaged in conduct
evidencing gross negligence, fraud, misrepresentation, or deceit;
new text end

new text begin (vii) refused to cooperate with an investigation or examination by the commissioner;
new text end

new text begin (viii) failed to pay any fee or assessment imposed by the commissioner; or
new text end

new text begin (ix) failed to comply with state and federal tax obligations.
new text end

new text begin Subd. 2. new text end

new text begin Orders of the commissioner. new text end

new text begin To begin a proceeding under this section, the
commissioner shall issue an order requiring the subject of the proceeding to show cause
why action should not be taken against the person according to this section. The order must
be calculated to give reasonable notice of the time and place for the hearing and must state
the reasons for entry of the order. The commissioner may by order summarily suspend a
license or exemption or summarily bar a person from engaging in student loan servicing
pending a final determination of an order to show cause. If a license or exemption is
summarily suspended or if the person is summarily barred from any involvement in the
servicing of student loans, pending final determination of an order to show cause, a hearing
on the merits must be held within 30 days of the issuance of the order of summary suspension
or bar. All hearings must be conducted under chapter 14. After the hearing, the commissioner
shall enter an order disposing of the matter as the facts require. If the subject of the order
fails to appear at a hearing after having been duly notified, the person is considered in
default, and the proceeding may be determined against the subject of the order upon
consideration of the order to show cause, the allegations of which may be considered to be
true.
new text end

new text begin Subd. 3. new text end

new text begin Actions against lapsed license. new text end

new text begin If a license or certificate of exemption lapses,
is surrendered, withdrawn, terminated, or otherwise becomes ineffective, the commissioner
may institute a proceeding under this subdivision within two years after the license or
certificate of exemption was last effective and enter a revocation or suspension order as of
the last date on which the license or certificate of exemption was in effect, and may impose
a civil penalty as provided for in this section or section 45.027, subdivision 6.
new text end

Sec. 11.

new text begin [58B.10] ATTORNEY GENERAL ENFORCEMENT.
new text end

new text begin In addition to the penalties provided in section 58B.09, a student loan servicer who is
found to have violated section 58B.07, subdivisions 1 to 4 and 7, shall be deemed in violation
of section 325F.69, subdivision 1, and the provisions of section 8.31 shall apply.
new text end

Sec. 12.

new text begin [58B.11] DATA PRACTICES.
new text end

new text begin Subdivision 1. new text end

new text begin Classification of data. new text end

new text begin (a) Data collected, created, received, maintained,
or disseminated by the Office of the Attorney General under this chapter are governed by
section 13.65.
new text end

new text begin (b) Data collected, created, received, maintained, or disseminated by the Department of
Commerce under this chapter are governed by section 46.07.
new text end

new text begin Subd. 2. new text end

new text begin Data sharing. new text end

new text begin To the extent data collected, created, received, maintained, or
disseminated under this chapter are not public data as defined by section 13.02, subdivision
8a, such data may, when necessary to accomplish the purpose of this chapter, be shared
between:
new text end

new text begin (1) the United States Department of Education;
new text end

new text begin (2) the Office of Higher Education;
new text end

new text begin (3) the Department of Commerce;
new text end

new text begin (4) the Office of the Attorney General; and
new text end

new text begin (5) any other local, state, and federal law enforcement agencies.
new text end

Sec. 13. new text begin APPROPRIATION.
new text end

new text begin (a) $249,000 in fiscal year 2021 is appropriated from the general fund to the commissioner
of commerce to administer the requirements of Minnesota Statutes, chapter 58B.
new text end

new text begin (b) $328,000 in fiscal year 2021 is appropriated from the general fund to the attorney
general to administer the requirements of Minnesota Statutes, chapter 58B.
new text end

Sec. 14. new text begin EFFECTIVE DATE.
new text end

new text begin Sections 1 to 6 and 8 to 13 are effective July 1, 2020.
new text end