Vitelli bill would rein in predatory student loan servicers
AUGUSTA — A bill by Sen. Eloise Vitelli, D-Arrowsic, would rein in predatory student loan servicers and protect borrowers by creating a “Student Loan Bill of Rights” in Maine.
The bill — LD 1507, “An Act to Establish a Student Loan Bill of Rights To License and Regulate Student Loan Servicers” — received a public hearing in the Insurance and Financial Affairs Committee on Wednesday.
“Too many young people saddled with student loan debt find it impossible to make purchases once thought of as standard for young adults. They are unable to purchase a car, a home, or put away any money into their savings accounts. In the worst cases, they are left bankrupt with nowhere to turn,” said Sen. Vitelli. “It is past time we take serious actions to make sure they are protected from the worst and most predatory practices of lenders.”
Student loan debt has become one of the defining problems facing a generation of students and graduates in Maine and across the country. According to the federal Consumer Financial Protection Bureau, or CFPB, more than 40 million borrowers have student loan debt nationwide, with a total volume of over $1.4 trillion of outstanding debt.
Sen. Vitelli’s legislation creates a “Student Loan Bill of Rights,” a statute that makes several changes within the Maine Bureau of Consumer Credit Protection. It creates a student loan ombudsman responsible for receiving, reviewing and resolving student loan borrower complaints. The ombudsman would inform borrowers of their rights and responsibilities, and provide information to the public and the Legislature. It would require an annual report by the superintendent of the bureau in regard to the effectiveness of the ombudsman.
The bill also creates a licensing procedure for lenders, which requires they submit an application and undergo investigation by Maine BCCP. Lastly, it requires lenders to comply with federal law, identifies prohibited acts for lenders, and identifies the duties of the superintendent with regard to investigation of lenders.
Too many borrowers are faced with flat out rejection when they seek refinancing or forgiveness through current programs. As a result, high payments and high interest rates are crushing borrowers and leaving them no choice but to default or continue paying unsustainable amounts of money from their monthly budget. More than 3,800 complaints have been submitted to the CFPB, documenting refusals from lenders to refinance or consolidate loans.
In January, loan servicer Navient Solutions, LLC was sued by the CFPB for deceiving customers to save operating costs. CFPB Director Richard Cordray said that Navient chose to shortcut and deceive consumers “at every stage of repayment.”
CFPB Assistant Director and Student Loan Ombudsman Seth Frotman submitted written testimony in support of the bill.
“Despite recent improvements in the labor market and the economy, the delinquency rate of student loans remains high. The share of consumers with past-due mortgages, credit cards, and car loans are at or below pre-recession levels,” said Frotman. “In contrast, the share of borrowers with delinquent student loans remains near its recession-era peak. Research has found that this financial distress persists throughout various regions of Maine, including rural communities across northern Maine.”
The bill also received the support of AARP Maine, Coastal Enterprises, Inc. and the Maine Center for Economic Policy, and several students testified in its support during the public hearing.
LD 1507 faces further action in the Insurance and Financial Services Committee and votes in the House and Senate.