Student Loan Protection Legislation Dies in Virginia House
Inside Subprime: Feb 20, 2019
By Lindsay Frankel
A bill that would require Virginia student loan servicers to be licensed was killed in the House Commerce and Labor Committee with a 10-9 vote. Sen. Janet Howell, D-Fairfax, introduced Senate Bill 1112 in an attempt to regulate student loan servicing companies and clarify their role in coordinating repayment. The legislation would have required these companies to be licensed by the State Corporation Commission.
Recently, state attorneys general in several states have brought lawsuits against one of the largest student loan servicers, one of the largest student loan servicers, following a previous lawsuit brought by the Consumer Financial Protection Bureau. These suits were brought over allegations that the company incorrectly stalled student loans in temporary forbearance instead of assisting borrowers with repayment plans. Attorneys general argue that borrowers may have ended up in a worse situation because of the student loan servicer’s actions.
The CFPB also received more than 4,000 complaints about the student loan servicer, with issues ranging from customer service complaints to disagreements about the fees the servicer charged.
Student loans are issued by the federal government, while servicers are responsible for ensuring they get repaid. The bill clarified the role of these companies, barring them from misquoting the amount of debt or misapplying payments, among other protections. Similar standards are in place for other loan servicers, such as mortgage lenders. And six states and the Washington D.C. have passed similar legislation to protect borrowers, according to U.S. News & World Report.
Banks and credit unions would have been exempt from the legislation, which would instead focus on the major servicers accounting for most of borrowers’ complaints to the CFPB last year regarding student loans.
Gov. Ralph Northman’s administration supported the bill, and other advocates called it a step in the right direction. Seth Frotman, executive director of the Student Borrower Protection Center, said that more than 1,800 student loan borrowers in Virginia have filed complaints about how their repayments were handled by servicers. And while he admitted that “There is no silver bullet to solve the student debt crisis,” he supported the bill and the protections it carried.
That crisis is getting worse for Virginia borrowers; earlier this year, an analysis by the Student Borrower Protection Center (SBPC), Virginia Poverty Law Center (VPLC), Virginia21, and Progress Virginia found that student debt has increased by 175 percent over the past 10 years, and that now 1-in-6, or more than 1 million Virginians, have student loan debt totaling more than $39 billion.
As Governor Northam said in his State of the Commonwealth address, “[i]t is high time we began regulating the companies that service our student loans. While people may not be able to avoid taking on debt to get an education, they should be able to count on basic consumer protections.”
The bill received opposition from Scott Buchanan, the executive director of the Student Loan Servicing Alliance, who stated, “Servicers are trying to do the right thing by borrowers.”
Had the bill passed, it would have gone into effect in July of 2020.
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