H.B. 707
GENERAL ASSEMBLY OF NORTH CAROLINA
Apr 27, 2021
SESSION 2021 HOUSE PRINCIPAL CLERK
H D
HOUSE BILL DRH10346-MUf-17
Short Title: Student Borrowers' Bill of Rights. (Public)
Sponsors: Representative Hunt.
Referred to:
1 A BILL TO BE ENTITLED
2 AN ACT TO ENACT A STUDENT BORROWERS' BILL OF RIGHTS, TO PROVIDE THAT
3 THE COMMISSIONER OF BANKS SHALL LICENSE AND REGULATE STUDENT
4 LOAN SERVICERS, TO PROVIDE ADDITIONAL PROTECTIONS FOR STUDENT
5 CONSUMERS, AND TO ESTABLISH THE POSITION OF THE STUDENT LOAN
6 OMBUDSMAN.
7 The General Assembly of North Carolina enacts:
8 SECTION 1.(a) Chapter 53 of the General Statutes is amended by adding a new
9 Article to read:
10 "Article 26.
11 "Student Borrowers' Bill of Rights.
12 "§ 53-440. Short title.
13 This Article may be cited as the Student Borrowers' Bill of Rights.
14 "§ 53-441. Purpose.
15 This Article protects student loan borrowers and their families by providing that the
16 Commissioner of Banks shall license and regulate student loan servicers to ensure that student
17 loan borrowers and their families are treated fairly.
18 "§ 53-442. Definitions.
19 The following definitions apply in this Article:
20 (1) Borrower. – Any of the following:
21 a. An individual residing in this State who has received or agreed to pay
22 a student loan.
23 b. An individual who has received or agreed to pay a student loan to
24 attend an institution located in this State.
25 c. A person that shares responsibility to repay a student loan with an
26 individual described in sub-subdivision a. or b. of this subdivision.
27 (2) Commissioner. – The Commissioner of Banks.
28 (3) Consumer reporting agency. – As defined in 15 U.S.C. § 1681a(f).
29 (4) Control. – The power, directly or indirectly, to direct the management or
30 policy of an entity, whether through ownership of securities, by contract, or
31 otherwise. The following persons are presumed to control an entity:
32 a. A director, general partner, or executive officer of the entity.
33 b. A person that directly or indirectly has ownership of or the power to
34 vote ten percent (10%) or more of a class of outstanding voting
35 securities of the entity.
36 c. In the case of a limited liability company, a managing member.
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1 d. In the case of a partnership, a person that has the right to receive upon
2 dissolution, or has contributed, ten percent (10%) or more of the
3 capital of the partnership.
4 (5) Nationwide Multistate Licensing System and Registry (NMLS). – The
5 licensing system developed and maintained by the Conference of State Bank
6 Supervisors and the American Association of Residential Mortgage
7 Regulators for the licensing of persons under this Article.
8 (6) Overpayment. – A payment on a student loan in excess of the amount due
9 from a borrower for a given period.
10 (7) Partial payment. – A payment on a student loan account that contains one or
11 more individual loans in an amount less than the amount necessary to satisfy
12 the outstanding payment due on all loans in the student loan account.
13 (8) Person. – An individual, partnership, limited liability company, limited
14 partnership, corporation, association, or other group engaged in joint business
15 activities however organized.
16 (9) Servicing. – Engaging in any of the following for compensation or gain:
17 a. Receiving any scheduled periodic payment on a student loan from a
18 borrower or any notification that a borrower made a scheduled
19 periodic payment on a student loan and applying a payment to the
20 balance of the student loan.
21 b. During a period when no payment is required on a student loan,
22 maintaining account records for the student loan and communicating
23 with the borrower regarding the student loan on behalf of the owner of
24 the student loan.
25 c. Having the right to receive payments from a borrower when the loan
26 is delinquent or in default.
27 (10) Student loan. – A loan or agreement that is extended to a borrower expressly
28 to finance postsecondary education expenses or other school-related expenses.
29 This term does not include open-end credit or any loan secured by real
30 property.
31 (11) Student loan servicer. – Any person, regardless of location, responsible for
32 servicing a student loan, whether or not licensed under this Article.
33 (12) Written inquiry. – Any non-verbal communication in any format, whether
34 electronic or hard copy.
35 "§ 53-443. License requirement for student loan servicers.
36 (a) License Requirement. – No person except those exempt under subsection (b) of this
37 section shall service a student loan unless the person has a student loan servicer license as
38 provided in this Article.
39 (b) Exemptions. – The following are exempt from all provisions of this Article except for
40 G.S. 53-450 and G.S. 53-451:
41 (1) A bank, savings bank, credit union, or savings and loan association organized
42 under the laws of any state or the United States.
43 (2) A wholly owned subsidiary of an entity described in subdivision (1) of this
44 subsection.
45 (3) The State or any political subdivision of the State.
46 (4) College Foundation, Inc.
47 "§ 53-444. License application.
48 (a) Application. – Applications under this Article shall be filed through the Nationwide
49 Multistate Licensing System and Registry (NMLS) in a form acceptable to the Commissioner.
50 To be considered complete, the application shall be verified by attestation of the applicant or a
51 designee of the applicant and shall include all of the following:
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1 (1) The applicant's legal name, along with any assumed business name, principal
2 address, including street address and mailing address, contact information,
3 and social security number or taxpayer identification number.
4 (2) The applicant's form and place of organization, if applicable.
5 (3) A certificate of good standing from the state in which the applicant was
6 organized, if applicable.
7 (4) A certificate of authority from the North Carolina Secretary of State to
8 conduct business in this State, if required by Article 15 of Chapter 55 of the
9 General Statutes, or other evidence of the applicant's registration or
10 qualification to do business in this State.
11 (5) The qualifications and business history of the applicant and, if applicable, the
12 business history of any person controlling the applicant, including a
13 description of any injunction or administrative order by any state or federal
14 authority to which the person is or has been subject.
15 (6) The applicant's financial condition, including its credit history, business
16 history, and most recent audited annual financial statement or, if the applicant
17 is a wholly owned subsidiary, the most recent audited annual financial
18 statement of the applicant's parent entity. This statement shall include the
19 balance sheet, statement of income or loss, statement of changes in
20 shareholder equity, if applicable, and statement of changes in financial
21 position.
22 (7) A record of any criminal convictions for the applicant or, in the case of an
23 applicant that is an entity, each individual who has control of the applicant for
24 a 10-year period prior to the date of the application, including the applicant's
25 consent to a federal and State criminal background check and a set of the
26 applicant's fingerprints in a form acceptable to the Commissioner. In the case
27 of an applicant that is an entity, each individual who has control over the
28 applicant shall consent to a federal and State criminal background check and
29 shall submit a set of the individual's fingerprints.
30 (8) A current schedule of the ranges and categories of the fees it charges
31 borrowers for servicing student loans.
32 (9) Any additional information that the Commissioner deems relevant.
33 (b) Fees. – An applicant shall include a nonrefundable application fee of one thousand
34 five hundred dollars ($1,500) with the application. In addition, every applicant for initial
35 licensure shall pay the actual cost of obtaining a credit report and federal and State criminal
36 background checks and the processing fees required by the NMLS.
37 (c) Investigation. – On receipt of the application and fees, the Commissioner shall
38 investigate the applicant's financial condition and responsibility, financial and business
39 experience, and character and general fitness.
40 (d) Abandoned Application. – The Commissioner may deem an application abandoned if
41 the applicant fails to respond to a written request for information by the Commissioner within 30
42 days of the date of the request. The written request may be given to the applicant through the
43 NMLS or by other electronic means.
44 (e) Issuance of License. – The Commissioner shall issue a student loan servicer license
45 to an applicant if the Commissioner finds all of the following:
46 (1) The applicant has satisfied the requirements imposed by this Article.
47 (2) The applicant's business will be conducted honestly, fairly, and in a manner
48 commanding the confidence and trust of the community.
49 (3) The applicant has demonstrated net worth necessary to satisfy the
50 requirements of G.S. 53-445.
51 (4) The applicant has obtained a surety bond in conformance with G.S. 53-446.
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1 (5) Persons controlling the applicant, as a group, have degrees of character,
2 competence, and experience that command the confidence and trust of the
3 community and justify the belief that the applicant will operate safely,
4 soundly, and in compliance with the law.
5 (6) The applicant meets other similar requirements determined by the
6 Commissioner.
7 (f) Automatic Issuance of License for Federal Student Loan Servicing Contractors. – A
8 person seeking to act within this State as a student loan servicer is exempt from the procedures
9 described in subsections (a) through (d) of this section upon a determination by the Commissioner
10 that the person is a party to a contract awarded by the United States Secretary of Education under
11 20 U.S.C. § 1087f. Any person seeking this exemption shall submit a written request for
12 verification of exemption to the Commissioner. The request shall be in a form acceptable to the
13 Commissioner and shall include a copy of any written agreement and related documentation that
14 is the basis for the exemption. The following provisions apply to the exemption:
15 (1) Actions by Commissioner. – With regard to a person deemed exempt under
16 this subsection, the Commissioner shall do all of the following:
17 a. Automatically issue a license upon payment of the fees required by
18 subsection (b) of this section.
19 b. Automatically issue a renewal license upon payment of the assessment
20 required by G.S. 53-448.
21 (2) Notice. – A person issued a license pursuant to this subsection shall provide
22 the Commissioner with written notice within seven days after notification of
23 the expiration, revocation, or termination of any contract awarded by the
24 United States Secretary of Education under 20 U.S.C. § 1087f. The person has
25 30 days after notification to satisfy all requirements established under
26 subsections (a) and (b) of this section in order to continue to act within this
27 State as a student loan servicer. At the expiration of the 30-day period, if the
28 person seeking to act within this State as a student loan servicer has not
29 satisfied the requirements of subsections (a) and (b) of this section, the
30 Commissioner shall summarily suspend any license granted to the person
31 under this section.
32 (3) Preservation of authorities. – With respect to student loan servicing not
33 conducted pursuant to a contract awarded by the United States Secretary of
34 Education under 20 U.S.C. § 1087f, nothing in this section prevents the
35 Commissioner from issuing, or filing a civil action for, an order to temporarily
36 or permanently enjoin a person from acting as a student loan servicer or from
37 violating this Article.
38 "§ 53-445. Minimum net worth.
39 (a) An applicant shall possess and a licensee shall maintain at all times a net worth of not
40 less than two hundred fifty thousand dollars ($250,000) calculated in accordance with generally
41 accepted accounting principles.
42 (b) The Commissioner may by order increase the amount of net worth required of an
43 applicant or licensee if the Commissioner determines additional net worth is necessary to ensure
44 safe and sound operation based on consideration of the following factors:
45 (1) The nature and volume of the projected or established business.
46 (2) The amount, nature, quality, and liquidity of assets.
47 (3) The amount and nature of liabilities.
48 (4) The history of operations and prospects for earning and retaining income.
49 (5) The quality of operations and management.
50 (6) The nature and quality of control persons.
51 (7) The history of compliance with State and federal law.
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1 (8) Any other factors the Commissioner deems relevant.
2 "§ 53-446. Surety bond.
3 (a) Applicants shall be required to post a surety bond with the Commissioner at
4 application, and licensees shall maintain a surety bond in the amount of one hundred fifty
5 thousand dollars ($150,000). If a servicer, however, has servicing volume in this State in a
6 calendar year in excess of ten million dollars ($10,000,000) but less than fifty million dollars
7 ($50,000,000), then the servicer's minimum bond amount shall be two hundred fifty thousand
8 dollars ($250,000), and if a servicer has servicing volume in this State in a calendar year of fifty
9 million dollars ($50,000,000) or more, then the servicer's minimum bond shall be five hundred
10 thousand dollars ($500,000).
11 (b) The surety bond shall be in a form satisfactory to the Commissioner and shall run to
12 the State for the benefit of any claimants against the licensee to secure the faithful performance
13 of the obligations of the licensee. The Commissioner has the discretion to require the applicant
14 to obtain ad