BILL NUMBER: S5598
SPONSOR: MAY
 
TITLE OF BILL:
An act to amend the general business law and the civil practice law and
rules, in relation to protecting private education loan borrowers and
cosigners
 
PURPOSE GENERAL IDEA OF BILL:
To extend long-term protections to private student loan borrowers.
 
SUMMARY OF PROVISIONS:
Section one of the bill creates a new article 42 in the general business
law entitled "Private Education Loan Protections."
Section 1100 of the new article includes definitions for "private educa-
tion loan," "private education lender," "borrower," "cosigner,"
"original creditor," "creditor," "debt collector," and "higher education
expense."
Section 1101 of the new article states the applicability of this article
to private education lenders and any person or entity that contracts
with a private education lender or servicer to service the loan.
Section 1102 of the new article exempts banks, credit unions, and their
subsidiaries from the obligations of this article to the extent that
state regulation is preempted by federal law.
Section 1103 of the new article lists the provisions applicable to
cosigners. Lenders will need to provide cosigner applicants information
about their rights, annual notices regarding cosigner release, notifica-
tion when borrower and cosigner have met the requirements for cosigner
release, and timely notification if borrower has submitted an incomplete
application for cosigner release or if borrower and cosigner have been
approved or denied for cosigner release. Lenders shall not impose any
restrictions that permanently bar borrowers from qualifying from cosig-
ner release. The borrower has the right to request an appeal of a lend-
er's determination to deny the cosigner release. The lender must provide
the cosigner with access to all documents and records related to the
cosigned private education loan.
Section 1104 of the new article prohibits the acceleration of payments
on a private education loan.
Section 1105 of the new article requires that in the first debt
collection communication, the creditor or debt collector must provide
certain information to the borrower or cosigner including the name of
the owner of the private education loan debt, the original creditor's
name and account number, and the total outstanding amount owed. Other
documents include a schedule of all transactions to the account and a
copy of all pages of the contract.
Section 1106 requires creditors and debt collectors to have certain
information related to the private education loan debt in their
possession prior to collecting or attempting to collect the private
education, loan debt. Section 1007 of the new article states that all
private education lenders, creditors, and debt collectors shall comply
with the provisions of this article. The Attorney General may bring an
action against non-compliant lenders, creditors, or debt collectors to
recover or obtain actual damages, correction of that person's credit
report, injunctive relief, and any other relief the court deems proper.
Section 1108 of the new article authorizes the Attorney General to
promulgate the rules and regulations of the article.
Section 1109 of the new article states that penalties may be brought
against violators of these provisions through civil action brought by
the attorney general.
Section two of the bill amends the definition of "original creditor"
found in section 105 of the civil practice law and rules so that, in the
case of an action arising from a private education loan only, that term
shall mean the name of the creditor listed on the original promissory
note or loan agreement.
Section three of the bill includes a severability clause.
Section four of the bill states the effective date.
 
JUSTIFICATION:
Borrowers with private education loans face a wide range of unique chal-
lenges when managing student debt. These loans often have extremely high
interest rates and no flexible or affordable repayment options, leaving
borrowers with little recourse when faced with a financial shock or
unemployment. When borrowers fall behind on this debt, they often face
aggressive debt collection tactics and lawsuits, all without the benefit
of the type of bankruptcy protection available to consumers with other
types of debt. Law enforcement officials have brought significant
federal and state litigation alleging predatory lending by the largest
private education lenders and alleging abusive collections, robo-sign-
ing, and illegal pursuit of invalid debts by collectors, investors, and
servicers. As recently as March 5, 2021, in an action brought by the
Washington Attorney General, a judge found that one private student loan
servicer, Navient, violated the law by effectively barring cosigners
from release from their loans after having promoted the availability of
release to encourage consumers to cosign loans. Specifically, the court
found that, among other things, the company counted payments in such a
way that they were not considered to be on time for the purpose of
cosigner release, offered forbearances and other borrowers assistances
without informing the borrower or cosigner that accepting would prevent
the cosigner from being released, and generally misrepresented the terms
of cosigner release to borrowers and cosigners. These cases expose
significant, systemic flaws in the way the judicial system approaches
private education loan debts-setting up the most vulnerable borrowers to
face persistent financial distress in the decades ahead.
As New York grapples with the economic fallout of the coronavirus
pandemic, student debt remains a financial anchor for more than two
million New Yorkers. The federal response to the pandemic has wholly
ignored the plight of private student loan borrowers, leaving them to
grapple with the predatory players that plague this sector of the
student loan market. But where the federal government has failed, New
York is stepping in.
The New York State Department of Financial Services (DFS) announced, on
April 7, 2020, that it negotiated with some of the largest private
student loan companies to offer relief to as many as 300,000 New Yorkers
struggling with private student loan debt. The proposed relief offered
up to 90 days of deferment and protection from negative credit report-
ing. However, this relief was only temporary and did not cover the
entire student loan market. Private student loan companies and creditors
have now resumed filing new lawsuits and continuing existing cases to
recover past-due debts, despite tens of thousands of people still out of
work or losing their jobs. Additionally, some of these companies submit
false or misleading legal documents against the borrower to courts. The
harmful effect of these lawsuits, which often lack even the most basic
levels of documentation and are disproportionately filed in majority-mi-
nority communities in New York, were documented in a report issued in
March 2021.
It is clear that student loan borrowers need long-term solutions as New
York works to recover from the pandemic. It is also clear that the
predatory conduct in the private student loan market centers around
specific types of misrepresentation and unfair practices, as well as
improper debt collection practices. This legislation creates protections
that specifically address these practices and would limit the economic
exploitation of vulnerable borrowers by ensuring that borrowers are
informed of any lender-specified repayment options and by creating
protections for new borrowers taking on debt.
 
PRIOR LEGISLATIVE HISTORY:
2023-24: S.362 (Thomas) / A.3155 (Zebrowski)
2021-22: S.5136-B (Thomas) / A.6226-B (Zebrowski)
 
FISCAL IMPLICATIONS:
None to the state.
 
EFFECTIVE DATE:
This act shall take effect immediately.

Statutes affected:
S5598: 105 civil practice law