2019 -- H 5936 SUBSTITUTE A

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LC002253/SUB A

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2019

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A N   A C T

RELATING TO FINANCIAL INSTITUTIONS -- STUDENT LOAN BILL OF RIGHTS ACT

     

     Introduced By: Representatives McNamara, Alzate, Amore, Cortvriend, and Newberry

     Date Introduced: March 29, 2019

     Referred To: House Judiciary

     (Attorney General/General Treasurer)

It is enacted by the General Assembly as follows:

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     SECTION 1. Title 19 of the General Laws entitled "FINANCIAL INSTITUTIONS" is

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hereby amended by adding thereto the following chapter:

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CHAPTER 33

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STUDENT LOAN BILL OF RIGHTS ACT

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     19-33-1. Title.

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     This chapter shall be known and may be cited as the "Student Loan Bill of Rights Act."

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     19-33-2. Definitions.

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     As used in this chapter:

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     (1) "Commissioner" means the commissioner of postsecondary education.

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     (2) "Department" means the department of business regulation, division of banking.

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     (3) "Director" means the director of the department of business regulation or designee.

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     (4) "Distressed borrower" means a student loan education borrower who is not considered

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current on their student education loan payments by the student loan servicer.

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     (5) "Student education loan" means any loan made to a student loan borrower primarily

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for personal use to finance postsecondary education or other school-related expenses, and does

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not include an extension of credit under an open-end consumer credit plan, a reverse mortgage

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transaction, a residential mortgage transaction, or any other loan that is secured by real property

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or a dwelling.

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     (6) "Student loan borrower" means:

 

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     (i) Any resident of this state who has received or agreed to pay a postsecondary student

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education loan; or

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     (ii) Any person who shares responsibility, as a guarantor or by other legal obligation,

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with such resident for repaying the postsecondary student education loan for another.

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     (7) "Student loan servicer" means any person or entity who engages in student loan

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servicing as defined in this chapter.

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     (8) "Student loan servicing" or "servicing" means:

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     (i)(A) Receiving any scheduled periodic payments from a student loan borrower or

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notification of such payments; and

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     (B) Applying payments to the student loan borrower's account pursuant to the terms of

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the student education loan or of the contract governing the servicing;

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     (ii) During a period when no payment is required on a student education loan,

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maintaining account records for the loan; and

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     (iii) Communicating with the student loan borrower regarding the loan, on behalf of the

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loan's holder; or

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     (iv) Interactions with a student loan borrower, including activities to help prevent default

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on obligations arising from student education loans, conducted to facilitate the activities

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described in this section.

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     19-33-3. Borrower assistance, education, and complaints.

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     (a) The department of attorney general's consumer protection unit, in collaboration with

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the director, general treasurer, and commissioner, shall:

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     (1) Receive, review, and attempt to resolve complaints from student loan borrowers;

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     (2) Compile and analyze data on student loan borrower complaints;

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     (3) Assist student loan borrowers to understand their rights and responsibilities under the

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terms of student education loans;

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     (4) Provide information to the public, agencies, the general assembly, and others

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regarding the problems and concerns of student loan borrowers and make recommendations for

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resolving those problems and concerns;

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     (5) Share information concerning the availability of the consumer protection unit to assist

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student loan borrowers and potential student loan borrowers, as well as public institutions of

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higher education, student loan servicers, and any other participant in student education loan

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lending with any student loan servicing concerns;

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     (6) Take any other actions necessary to fulfill the borrower assistance, education, and

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complaints-related duties in this chapter; and

 

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     (b) The attorney general, the director, the general treasurer, and the commissioner, or

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designees, shall meet at least once per quarter to coordinate their efforts under this chapter.

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     19-33-4. Registration of student loan servicers.

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     (a) Each person or entity that services any student education loan issued to a student loan

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borrower after July 1, 2019, shall register with the department as a student loan servicer no later

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than September 30, 2019, or within thirty (30) days of conducting servicing of student education

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loans, whichever is earlier.

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     (b) The registration provisions of this chapter shall not apply to:

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     (1) Any person or entity that services fewer than six (6) student education loans in this

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state during any consecutive twelve (12) month period; and

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     (2) Any person or entity that services loans for education other than postsecondary

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education.

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     (c) As part of that registration, the person or entity shall:

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     (1) Complete a registration in the form promulgated by the department providing the

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information requested by the application;

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     (2) Pay an annual registration fee of one thousand dollars ($1,000);

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     (3) Provide a bond in which the registrant shall be the obligor, and which shall run to the

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state for the use of the state and of the person who may have a cause of action against the obligor

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of the bond under the provisions of this chapter. The bond shall be perpetual and shall be

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conditioned upon the obligor conforming to the provisions of this chapter and all regulations

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thereunder and the obligor will pay to the state and to any person all money that may become due

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or owing to the state or to the person from the obligor under the provisions of this chapter. The

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bond shall provide for notice directly to the department in the manner specified by the

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department, if the bond is cancelled by the surety for any reason. The bond shall be in the sum of

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fifty thousand dollars ($50,000).

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     (4) Appoint, and thereafter maintain, a resident agent in this state with authority to accept

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service of process for the registrant in this state, including the process of garnishment:

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     (i) Service of process upon the agent shall be deemed sufficient service upon the

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registrant; and

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     (ii) Any process, including the process of garnishment, may be served upon the director,

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as agent of the registrant, in the event that no resident agent can be found upon whom service can

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be made, or the registrant has failed to designate a resident agent as required.

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     (d) No registration shall be transferable or assignable. A change in ownership of less than

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twenty-five percent (25%) of the voting stock or equity interests of a registrant shall not be

 

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considered a transfer or assignment of the registration. A change in ownership of twenty-five

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percent (25%) or more of the voting stock or equity interests shall require notification to the

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department, and registration by the transferee/assignee within fifteen (15) days of the change in

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ownership. A change in name shall require notification to the department within fifteen (15) days.

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     (e) Any registrant shall, within twenty-four (24) hours after actual knowledge, notify the

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department of the occurrence of any of the following events:

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     (1) The institution of bankruptcy, receivership, reorganization, or insolvency proceedings

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regarding a registrant;

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     (2) The institution of any adverse government action against a registrant; or

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     (3) Any felony indictment or conviction of any registrant or any officers, directors,

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owners, employees, members, or partners thereof.

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     (f) Student loan servicers shall designate and provide contact information for an

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individual to represent the student loan servicer in communications with the department. Such

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information shall be updated within ten (10) days of any change thereto.

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     (g) Registration shall be valid for one calendar year, and student loan servicers shall be

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required to renew their registration with the department annually.

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     (h) The department may assess a fine of ten thousand dollars ($10,000) on any student

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loan servicer that services student education loans for thirty (30) or more days without registering

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and complying with the conditions provided in this section.

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     (i) The department may share any information gathered through its registration or

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examination of student loan servicers with the attorney general.

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     19-33-5. Servicer registration account established.

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     There is established a restricted receipt account to be known as the "servicer registration

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account" which shall be a separate account within the department. Registration fees and other

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monies, excluding examination fees pursuant to § 19-33-9, received by the department pursuant

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to the terms of this chapter shall be deposited into the account. Monies deposited in the account

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shall be transferred to the department of attorney general's student loan consumer protection

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account at the request of the attorney general and shall be expended for the purpose of

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administering the provisions of this chapter.

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     19-33-6. Maintenance of records.

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     (a) Each student loan servicer shall maintain complete records of each student education

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loan transaction, including recordings of communications with borrowers, for not less than two

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(2) years following the final payment on such student education loan or the assignment of such

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student education loan, whichever occurs first, or any longer period as may be required by any

 

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other provision of the general or public laws.

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     (b) If requested by the division of banking, each student loan servicer shall make all

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records available, not later than five (5) business days after requested. Upon request, the

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department may grant a student loan servicer additional time to make such records available.

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     19-33-7. Reporting requirements.

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     (a) Each registrant shall annually, on or before March 31, file a report with the

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department, giving any relevant information that the department may reasonably require

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concerning the business and operations during the preceding calendar year of registrant within the

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state. At the time of filing each report, the sum of fifty-five dollars ($55.00) per registration shall

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be paid by the registrant to the department. Any registrant that delays the transmission of any

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report required by the provisions of this chapter beyond the limit, unless additional time is

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granted, in writing, for good cause, the department shall assess a penalty of twenty-five dollars

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($25.00) for each day of the delay.

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     19-33-8. Responsibilities of student loan servicers.

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     (a) A student loan servicer shall provide annually, and at the request of a student loan

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borrower, the terms of their loan, progress toward repayment, and eligibility for any loan relief

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programs including, but not limited to, income driven repayment plans, public service loan

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forgiveness, forbearance and deferment.

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     (b) A student loan servicer shall establish policies and procedures, and implement them

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consistently, in order to facilitate evaluation of private student loan alternative repayment

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arrangement requests, including providing accurate information regarding any private student

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loan alternative repayment arrangements that may be available to the borrower through the

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promissory note, or that may have been marketed to the borrower through marketing materials.

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     (c) A private student loan alternative repayment arrangement shall consider the

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affordability of repayment plans for a distressed borrower, as well as the investor, guarantor, and

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insurer guidelines, and previous outcome and performance information.

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     (d) If a student loan servicer offers private student loan repayment arrangements, a

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student loan servicer shall consistently present and offer those arrangements to borrowers with

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similar financial circumstances.

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     (e) If a borrower inquires of a servicer of private student loans about consolidating or

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refinancing a federal student loan into a private student loan, the servicer of private student loans

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must disclose in advance of the refinancing or consolidation, any benefits or protections exclusive

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to federal student loans that may be lost as a result of the consolidation or refinancing.

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     (f) A student loan servicer shall respond to a written inquiry from a student loan

 

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borrower, or the representative of a student loan borrower, within ten (10) business days after

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receipt of the request, and provide information relating to the request and, if applicable, the action

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the student loan servicer will take to correct the account or an explanation for the student loan

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servicer's position that the borrower's account is correct.

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     (1) The ten (10) day period described in subsection (e) of this section may be extended

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for not more than fifteen (15) days, if before the end of the ten (10) day period the student loan

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servicer, notifies the borrower or the borrower's representative of the extension, and the reasons

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for the delay in responding.

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     (2) After receipt of a written request related to a credit reporting dispute on a borrower's

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payment on a student education loan, a student loan servicer shall not furnish adverse information

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to a consumer reporting agency regarding a payment that is the subject of the written inquiry.

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     (g) Except as provided by federal law or required by a student loan agreement, a student

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loan servicer shall inquire of a borrower how to apply an overpayment to a student education

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loan. A borrower's direction on how to apply an overpayment to a student education loan shall

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stay in effect for any future overpayments during the term of a student education loan until the

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borrower provides different directions. For purposes of this section, "overpayment" means a

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payment on a student education loan in excess of the monthly amount due from a borrower on a

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student education loan, also commonly referred to as a prepayment.

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     (h) Where a borrower has multiple loans at the same level of delinquency, a student loan

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servicer shall apply partial payments in a manner that minimizes late fees and negative credit

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reporting by applying such payments to satisfy as many individual loan payments as possible on a

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borrower's account. For purposes of this section, "partial payment" means a payment on a student

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loan account that contains multiple individual loans in an amount less than the amount necessary

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to satisfy the outstanding payment due on all loans in the student loan account, also commonly

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referred to as an underpayment.

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     (i) In the event of the sale, assignment, or other transfer of the servicing of a student

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education loan that results in a change in the identity of the person to whom a student loan

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borrower is required to send payments or direct any communication concerning the student

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education loan, the following provisions apply:

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     (1) As a condition of a sale, an assignment, or any other transfer of the servicing of a

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student education loan, a student loan lender shall require the new student loan servicer to honor

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all benefits originally represented as available to a student loan borrower during the repayment of

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the student education loan and preserve the availability of the benefits, including any benefits for

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which the student loan borrower has not yet qualified.

 

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     (2) A student loan servicer shall transfer to the new student loan servicer all records

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regarding the student loan borrower, the account of the student loan borrower, and the student

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education loan of the student loan borrower.

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     (3) The records required under subsection (h)(2) of this section shall include the

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repayment status of the student loan borrower and any benefits associated with the student

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education loan of the student loan borrower.

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     (4) The student loan servicer shall complete the transfer of records required under

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subsection (h)(2) of this section within forty-five (45) days after the sale, assignment, or other

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transfer of the servicing of a student education loan.

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     (5) The parties shall notify all student loan borrowers impacted by the sale, assignment,

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or other transfer of the servicing of a student education loan at least seven (7) days before the next

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payment on the loan is due. Notice must include: the identity of the new loan holder and/or

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servicer, the effective date of the transfer, the date on which the old servicer will no longer accept

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payments, the date on which the new servicer will begin to accept payments, and contact and

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billing information for loan payments.

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     (j) A student loan servicer that services a student education loan shall adopt policies and

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procedures to verify that the student loan servicer has received all records regarding the student

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loan borrower, the account of the student loan borrower, and the student education loan of the

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student loan borrower, including the repayment status of the student loan borrower and any

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benefits associated with the student education loan of the student loan borrower.

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     (k) When a prior student loan servicer receives a payment intended for the new student

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loan servicer, the prior student loan servicer must promptly transfer the payment to the new

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servicer, along with the date the prior servicer received the payment.

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     (l) When a new servicer receives a payment from a prior servicer under subsection (j) of

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this section, the payment must be applied as of the date received by the prior servicer. A student

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loan servicer must implement processes and controls to ensure a student loan borrower does not

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incur additional interest, fees, or delinquency due to complications related to the sale, assignment,

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or other transfer of the servicing of a student education loan.

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     19-33-9. Examinations.

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     (a) In addition to any other authority provided under this chapter, the department shall

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have the authority to conduct examinations of registrants.

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     (b) In order to carry out the purposes of this chapter, the department may:

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     (1) Retain attorneys, accountants or other professionals and specialists as examiners or

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auditors to conduct or assist in the conduct of examinations. The costs of such persons shall be

 

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borne by the registrant;

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     (2) Enter into agreements or relationships with other government officials or regulatory

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associations in order to improve efficiencies and reduce regulatory burden by sharing resources,

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standardized or uniform methods or procedures, and documents, records, information or evidence

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obtained under this section;

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     (3) Use, hire, contract or employ public or privately available analytical systems,

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methods or software to examine the student loan servicer or person subject to the provisions of

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this chapter. The costs of such systems shall be borne by the registrant;

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     (4) Accept and rely on examination reports made by other government officials, within or

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outside of the state; and

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     (5) Accept audit reports made by an independent certified public accountant for the

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student loan servicer or person subject to the provisions of this chapter in the course of that part

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of the examination covering the same general subject matter as the audit and incorporate the audit

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report in the report of examination or other writing of the department.

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     (c) The department may at any time examine the student education loans and business

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and examine the books, accounts, records, and files used therein, of every registrant and person

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who shall be engaged in any activity that requires a registration under this chapter, whether the

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person shall act, or claim to act, as principal or agent, or under or without the authority of this

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chapter. For that purpose, the department shall have free access to the offices and places of

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business, books, accounts, paper, records, files, and safes, of all such persons. The department,

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shall have authority to require the attendance of, and to examine under oath, any person whose

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testimony may be required relative to the student education loans or the business or to the subject

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matter of any examination, or hearing.

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     (d) The department shall make an examination of the affairs, business, office, and records

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of each registrant as often as is necessary, based upon all relevant factors, including the volume of

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activity within the state. The total cost of an examination made pursuant to this section shall be

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paid by the registrant or person being examined and shall include the following expenses:

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     (1) One hundred fifty percent (150%) of the total salaries and benefits plus one hundred

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percent (100%) of the travel and transportation expenses for the examining personnel engaged in

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the examinations. The fees shall be paid to the department to, and for the use of, the state. The

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examination fees shall be in addition to any taxes and fees otherwise payable to the state;

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     (2) All reasonable technology costs related to the examination process. Technology costs

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shall include the actual cost of software and hardware utilized in the examination process and the

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cost of training examination personnel in the proper use of the software or hardware; and

 

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     (3) All necessary and reasonable education and training costs incurred by the state to

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maintain the proficiency and competence of the examination personnel. All such costs shall be

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incurred in accordance with appropriate state of Rhode Island regulations, guidelines, and

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procedures.

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     (e) The authority of this chapter shall remain in effect, whether such student loan servicer

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or person subject to the provisions of this chapter acts or claims to act under any licensing or

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registration law of this state, or claims to act without such authority.

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     (f) No student loan servicer or person subject to examination under this section may

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knowingly withhold, abstract, remove, mutilate, destroy or secrete any books, records, computer

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records or other information.

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     (g) The provisions of § 19-4-3 shall apply to investigatory records and examination

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reports issued by other state and federal regulatory agencies, and the work papers of examinations

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or investigations of registrants created by the department; provided, however, the director or

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designee, is authorized to make public all consumer complaints and final examination reports

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issued by the department as determined by the director or designee.

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     19-33-10. Fines.

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     (a) The director, after an administrative hearing pursuant to chapter 35 of title 42, may

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issue fines upon a finding that the registrant violated the provisions of this chapter, or any

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regulation or order lawfully made pursuant to this chapter; or take any other action provided for

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in this chapter.

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     (b) Any student loan servicer or the members, officers, directors, agents, and employees

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of any student loan servicer who violate or participate in the violation of any of the applicable

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provisions of this chapter, or any regulation promulgated thereunder shall be punished by a fine

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of not more than two thousand dollars ($2,000) per violation. Each student education loan

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constitutes a separate offense.

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     19-33-11. Appeal and review.

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     Any student loan servicer aggrieved by an action of the department in imposition of fines

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shall have the right to appeal the action, order, or decision pursuant to chapter 35 of title 42.

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     19-33-12. Prohibited conduct.

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     No student loan servicer shall:

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     (1) Directly or indirectly employ any scheme, device or artifice to defraud or mislead

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student loan borrowers;

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     (2) Engage in any unfair or deceptive practice toward any person or misrepresent or omit

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any material information in connection with the servicing of a student education loan, including,

 

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but not limited to, misrepresenting the amount, nature or terms of any fee or payment due or

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claimed to be due on a student education loan, the terms and conditions of the loan agreement or

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the borrower's obligations under the loan;

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     (3) Obtain property by fraud or misrepresentation;

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     (4) Knowingly misapply or recklessly apply student education loan payments to the

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outstanding balance of a student education loan;

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     (5) Knowingly or recklessly provide inaccurate information to a credit bureau, thereby

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harming a student loan borrower's creditworthiness;

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     (6) Fail to report both the favorable and unfavorable payment history of the student loan

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borrower to a nationally recognized consumer credit bureau at least annually if the student loan

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servicer regularly reports information to a credit bureau;

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     (7) Refuse to communicate with an authorized representative of the student loan borrower

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who provides a written authorization signed by the student loan borrower, provided the student

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loan servicer may adopt procedures reasonably related to verifying that the representative is in

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fact authorized to act on behalf of the student loan borrower;

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     (8) Negligently make any false statement or knowingly or willfully make any omission of

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a material fact in connection with any information or reports filed with a governmental agency or

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in connection with any examination conducted by the department or investigation conducted by

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the attorney general or other governmental agency; or

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     (9) Fail to properly evaluate a student loan borrower for an income-driven or other

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student loan repayment program or for eligibility for a public service loan forgiveness program

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before placing the student loan borrower in forbearance or default, if an income-driven repayment

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or other program is available to the student loan borrower except as otherwise provided in federal

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law, federal student loan agreements, or a contract between the federal government and a student

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loan servicer.

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     19-33-13. Investigation and enforcement.

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     The attorney general may enforce a violation of § 19-33-12 as an unlawful act or practice

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under chapter 13.1 of title 6.

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     19-33-14. Private actions.

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     Any student loan borrower may bring an action under § 6-13.1-5.2 for a violation of § 19-

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33-12 as an unlawful act or practice under chapter 13.1 of title 6.

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     19-33-15. Student loan consumer protection account established.

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     A student loan consumer protection restricted receipt account (the "account") is hereby

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created within the department of the attorney general. Monies deposited in the account shall be

 

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expended by the attorney general for the purpose of administering the provisions of this chapter.

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     19-33-16. Exemption.

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     (a) For the purposes of this chapter, any federal or state chartered bank or credit union

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that originates a student education loan, or acts as a servicer and any wholly owned subsidiary of

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a bank or credit union, shall be exempt from the provisions of §§ 19-33-4, 19-33-6 through 19-

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33-11, inclusive, §§ 19-33-12(9) and 19-33-14.

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     (b) Student loan servicers that are not banks or credit unions operating under federal or

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state charters, nor wholly owned subsidiaries thereof that service student loans on behalf of state

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or federal chartered banks and credit unions, shall not be exempt from any section of this chapter.

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     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO FINANCIAL INSTITUTIONS -- STUDENT LOAN BILL OF RIGHTS ACT

***

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     This act would create the "student loan bill of rights act", which would establish

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guidelines for the attorney general's consumer protection unit, in collaboration with the director

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of business regulation, the general treasurer, and the commissioner of postsecondary education to

4

receive and review complaints of student loan borrowers. In addition, the duties and

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responsibilities of student loan servicers are set forth in the act.

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     This act would take effect upon passage.

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