Legislation aimed at forcing student loan service companies to be more transparent and forthcoming in their dealings with borrowers cleared the House of Delegates with bipartisan support Monday.
The bill creates a “borrower’s bill of rights” and would subject the student loan industry to rules in line with what are currently in place for banks, credit unions and mortgage lenders, says its patron, Del. Marcus Simon, D-Fairfax.
“Right now student loan borrowers are unregulated at the state level despite being the second largest source of debt in the United States,” Simon said.
The rules would explicitly prohibit a wide range of bad behavior on the part of companies that serve as a go-between for students and federal or private financing companies, including:
- making false statements or omitting material facts,
- misapplying payments,
- defrauding or misleading, and
- refusing to correct credit reports.
The bill allows the Virginia Attorney General’s Office and the Bureau of Financial Institutions to investigate and pursue complaints, establishing a civil penalty of $2,500 per violation and allowing borrowers to recoup a maximum of $500 in damages per violation, which Simon said might not sound like a lot, but could quickly add up because violations are often repeated on a monthly basis.
Simon and Sen. Janet Howell, D-Fairfax, who is carrying the legislation in the Senate, said that the new regulations will largely retread rules that already exist at the federal level, but make it easier for borrowers with complaints to pursue them without initiating a federal lawsuit against a major corporation.
The student loan industry has been subject to growing scrutiny, and there is no shortage of horror stories among borrowers. That includes members of the General Assembly.
Del. Mike Mullin, D-Newport News, an assistant commonwealth’s attorney in Hampton, said last year that despite assurances he would qualify for a public service student loan forgiveness program, he learned that his $82,000 in student loans didn’t, in fact, qualify.
“Pardon me for a moment while I start throwing furniture,” he tweeted at the time.
State residents have made more than 1,200 complaints about student loans to the Consumer Financial Protection Bureau since 2016. Almost half of them have been about Navient, a company that took over loans from the private Sallie Mae and is facing lawsuits in six states.
No one spoke against the legislation when it was heard in the House Labor and Commerce Committee last week, but several Republican members of the committee questioned the necessity of the legislation.
“Are you insinuating groups are doing this now?” asked Del. Danny Marshall, R-Danville.
Yes, Simon responded. “That is happening to Virginia borrowers and it is happening nationwide,” he said, citing lawsuits and consumer complaints.
A version of the legislation cleared the Senate last year, but under Republican control of the House, it never made it past the committee level for a full vote. Advocates, who have sought legal protections for student borrowers for years, cheered Monday’s 84-15 vote as a significant victory, especially for low-income and first-generation college students.
“They get saddled with this debt and they need to know from their servicers the right way to deal with it, the right program to be in – otherwise their entire financial future is going to be ruined,” said Jay Speer, executive director of the Virginia Poverty Law Center.