SB859: Bill Text

This bill creates an Office of the Student Loan Ombudsman (office) in the Department of Financial Institutions and requires student loan servicers to be licensed by this office. The bill contains a variety of provisions governing student education loans, student loan borrowers, and student loan servicers. Under the bill, a “student education loan" means a loan that is extended to a student loan borrower expressly for postsecondary education expenses or related expenses. A “student loan borrower" means a resident of this state who has received or agreed to pay a student education loan or a person who shares legal responsibility for repaying the loan. A “student loan servicer" means a person responsible for the servicing of a student education loan, but excludes certain state-regulated financial service providers. “Servicing” means receiving scheduled periodic payments from a student loan borrower; applying payments received from a student loan borrower; and performing other administrative services with respect to a student education loan.

The bill requires a student loan servicer, wherever located, to be licensed by the office before directly or indirectly engaging in servicing student education loans in this state. A student loan servicer must hold a separate license for each of its places of business and the student loan servicer may not act under any name or at any place of business that is not identified in the license.

The bill imposes numerous requirements on student loan servicers, including requirements relating to all of the following:

1. Responding to written inquiries from student loan borrowers.

2. Handling and applying “nonconforming payments," defined as payments on student education loans that are different from the required payments.

3. Responsibilities if there is a sale, assignment, or other transfer of the servicing of a student education loan.

4. Maintaining and making available to the office records related to student education loan transactions.

The bill also prohibits a student loan servicer from engaging in certain conduct or activity, including the following:

1. Defrauding or misleading a student loan borrower.

2. Engaging in an unfair or deceptive practice or misrepresenting or omitting material information in connection with the servicing of a student education loan.

3. Misapplying student education loan payments.

4. Providing inaccurate information to a credit bureau related to a student loan borrower's creditworthiness.

5. Refusing to communicate with an authorized representative of a student loan borrower.

6. Failing to evaluate a student loan borrower for an income-based repayment program prior to placing the student loan borrower in default.

The bill also specifies the authority of the office to conduct investigations and examinations and take administrative action and also provides a private right of action for violations of the requirements or prohibitions under the bill.

The bill requires the office to perform certain functions, including: 1) assisting student loan borrowers; 2) receiving and attempting to resolve complaints from student loan borrowers and others; 3) compiling and analyzing data about these complaints; 4) assisting student loan borrowers in various ways; 5) providing information to the public and others regarding the problems and concerns of student loan borrowers; and 6) analyzing and monitoring the development and implementation of laws and policies relating to student loan borrowers.

Although the bill exempts certain state-regulated financial service providers, primarily state-chartered financial institutions, from licensing and most other requirements applicable to student loan servicers, the bill requires these exempt organizations to cooperate with the office and provide information requested by the office necessary to investigate and resolve student loan borrower complaints.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB859,1 Section 1. 15.01 (6) of the statutes, as affected by 2023 Wisconsin Act 20, is amended to read:

SB859,3,15 15.01 (6) “Division," “bureau," “section," and “unit" means the subunits of a department or an independent agency, whether specifically created by law or created by the head of the department or the independent agency for the more economic and efficient administration and operation of the programs assigned to the department or independent agency. The office of credit unions and the office of the student loan ombudsman in the department of financial institutions, the office of the inspector general in the department of children and families, the office of the inspector general in the department of health services, and the office of children's mental health in the department of health services have the meaning of “division" under this subsection. The office of the long-term care ombudsman under the board on aging and long-term care and the office of educational accountability and the office of literacy in the department of public instruction have the meaning of “bureau" under this subsection.

SB859,2 Section 2. 15.02 (3) (c) 1. of the statutes is amended to read:

SB859,3,24 15.02 (3) (c) 1. The principal subunit of the department is the “division". Each division shall be headed by an “administrator". The office of credit unions and the office of the student loan ombudsman in the department of financial institutions and the office of children's mental health in the department of health services have the meaning of “division" and the director of credit unions in the department of financial institutions and the director of the office of children's mental health in the department of health services have the meaning of “administrator" under this subdivision.

SB859,3 Section 3. 15.185 (6) of the statutes is created to read:

SB859,4,2 15.185 (6) Office of the student loan ombudsman. There is created in the department of financial institutions an office of the student loan ombudsman.

SB859,4 Section 4 . Subchapter V of chapter 224 [precedes 224.101] of the statutes is created to read:

SB859,4,5 Chapter 224

SB859,4,7 Subchapter V STUDENT LOANS

SB859,4,8 224.101 Definitions. In this subchapter:

SB859,4,9 (1) “Board” means the higher educational aids board.

SB859,4,11 (2) “Exempt organization” means the board or a state-regulated financial service provider.

SB859,4,12 (3) “Licensee” means a person holding a license issued under this subchapter.

SB859,4,13 (4) “Office” means the office of the student loan ombudsman in the department.

SB859,4,14 (5) “Servicing" means doing all of the following:

SB859,4,16 (a) Receiving scheduled periodic payments from a student loan borrower pursuant to the terms of a student education loan.

SB859,4,19 (b) Applying the payments of principal and interest and any other payments with respect to the amounts received from a student loan borrower as may be required pursuant to the terms of a student education loan.

SB859,4,21 (c) Performing other administrative services with respect to a student education loan.

SB859,4,22 (6) “State-regulated financial service provider” means any of the following:

SB859,4,23 (a) A bank organized under ch. 221.

SB859,4,24 (b) A savings bank organized under ch. 214.

SB859,4,25 (c) A savings and loan association organized under ch. 215.

SB859,5,1 (d) A credit union organized under ch. 186.

SB859,5,2 (e) A consumer lender licensed under s. 138.09.

SB859,5,5 (7) “Student education loan" means a loan that is extended to a student loan borrower expressly for postsecondary education expenses or related expenses and does not include open-end credit or any loan that is secured by real property.

SB859,5,6 (8) “Student loan borrower" means any of the following:

SB859,5,8 (a) A resident of this state who has received or agreed to pay a student education loan.

SB859,5,10 (b) A person who shares legal responsibility with a resident under par. (a) for repaying the student education loan.

SB859,5,13 (9) “Student loan servicer" means a person, wherever located, responsible for the servicing of a student education loan, but does not include the board or any state-regulated financial service provider.

SB859,5,14 224.102 Ombudsman services. The office shall do all of the following:

SB859,5,15 (1) Provide timely assistance to student loan borrowers.

SB859,5,16 (2) Receive, review, and attempt to resolve complaints from all of the following:

SB859,5,17 (a) Student loan borrowers.

SB859,5,20 (b) In collaboration with institutions of higher education, student loan servicers and any other participants in student education loan lending, including originators servicing their own student education loans.

SB859,5,22 (3) Compile and analyze data on student loan borrower complaints as described in sub. (2) and as resolved under s. 224.104.

SB859,5,24 (4) Assist student loan borrowers in understanding their rights and responsibilities under the terms of student education loans.

SB859,6,3 (5) Provide information to the public, agencies, the legislature, and others regarding the problems and concerns of student loan borrowers and make recommendations for resolving those problems and concerns.

SB859,6,6 (6) Analyze and monitor the development and implementation of federal, state, and local laws, ordinances, regulations, rules, and policies relating to student loan borrowers and recommend any necessary changes.

SB859,6,8 (7) Review, as authorized and appropriate, the complete student education loan history for a student loan borrower who provides written consent for the review.

SB859,6,13 (8) Provide sufficient outreach and disseminate information concerning the availability of the office to assist student loan borrowers and potential student loan borrowers, public institutions of higher education, student loan servicers, and any other participants in student education loan lending with any student education loan servicing concerns.

SB859,6,16 (9) Seek the assistance of an exempt organization in the resolution of a student loan borrower complaint as described in sub. (2) involving that exempt organization. The exempt organization shall cooperate with the office as required by s. 224.104.

SB859,6,18 (10) Take any other action necessary to fulfill the duties of the office as set forth in this subchapter.

SB859,6,22 224.103 Annual report. The office shall submit a report by January 1 of each year to the standing committee of each house of the legislature having jurisdiction over matters related to higher education. The report shall include all of the following:

SB859,6,24 (1) A description of actions taken with respect to the implementation of this subchapter.

SB859,7,3 (2) An assessment of the overall effectiveness of the office, including information, in the aggregate, regarding student loan borrower complaints investigated with the assistance of an exempt organization.

SB859,7,6 (3) Recommendations regarding additional steps for the department to gain regulatory control over licensing and enforcement with respect to student loan servicers.

SB859,7,13 224.104 Assistance by exempt organizations; report. (1) An exempt organization that is requested by the office to provide assistance under s. 224.102 (9) shall provide, in a timely manner, the information requested by the office necessary to investigate and resolve a student loan borrower complaint, including the steps taken by the exempt organization to resolve the complaint, or, on its own, shall resolve, in a timely manner, the complaint and provide the office with documentation regarding the resolution.

SB859,7,16 (2) Annually, an exempt organization that is involved in the resolution of a complaint under this section shall report to the office the number of complaints received and the number of complaints resolved by the exempt organization.

SB859,7,20 224.105 Licensing of student loan servicers. (1) A person, wherever located, may not directly or indirectly engage in servicing student education loans in this state without first obtaining a license from the office under this section, unless the person is exempt from licensure under sub. (2).

SB859,7,22 (2) The following persons are exempt from the licensing requirement under sub. (1):

SB859,7,23 (a) A state-regulated financial service provider.

SB859,7,24 (b) The board.

SB859,8,3 (3) A person seeking to act within this state as a student loan servicer shall make a written application to the office for an initial license in the form prescribed by the office. The application shall be accompanied by all of the following:

SB859,8,7 (a) A financial statement prepared by a certified public accountant or a public accountant, a general partner if the applicant is a partnership, a corporate officer if the applicant is a corporation, or a member duly authorized to execute such documents if the applicant is a limited liability company or association.

SB859,8,10 (b) Information regarding the history of criminal convictions of the following, which information must be sufficient, as determined by the office, to make the findings under sub. (4):

SB859,8,11 1. The applicant.

SB859,8,12 2. Officers, directors, and principal employees of the applicant.

SB859,8,14 3. Each individual shareholder, member, or partner who directly or indirectly controls 10 percent or more of the ownership interests of the applicant.

SB859,8,15 (c) A nonrefundable license fee of $1,000.

SB859,8,16 (d) A nonrefundable investigation fee of $800.

SB859,8,23 (4) Upon the filing of an application for an initial license and the payment of the fees for licensing and investigation under sub. (3), the office shall investigate the financial condition and responsibility, financial and business experience, character, and general fitness of the applicant. The office may conduct criminal history background checks of the applicant and of each partner, member, officer, director, and principal employee of the applicant. The office may issue a license if the office finds all of the following to be true:

SB859,8,24 (a) The applicant's financial condition is sound.

SB859,9,3 (b) The applicant's business will be conducted honestly, fairly, equitably, carefully, and efficiently within the purposes and intent of this subchapter and in a manner commanding the confidence and trust of the community.

SB859,9,6 (c) No person on behalf of the applicant has knowingly made an incorrect statement of a material fact in the application or in any report or statement made under this subchapter.

SB859,9,7 (d) The applicant has met any other requirements as determined by the office.

SB859,9,21 (5) A license issued under this section expires at the close of business on September 30 of the odd-numbered year following its issuance, unless renewed or earlier surrendered, suspended, or revoked. No later than 15 days after a licensee ceases to engage in the business of student education loan servicing in this state for any reason, including a business decision to terminate operations in this state, license revocation, bankruptcy, or voluntary dissolution, the licensee shall provide written notice of surrender to the office and shall surrender to the office its license for each location in which the licensee has ceased to engage in such business. The written notice of surrender shall identify the location where the records of the licensee will be stored and the name, address, and telephone number of an individual authorized to provide access to the records. The surrender of a license does not reduce or eliminate the licensee's civil or criminal liability arising from acts or omissions occurring prior to the surrender of the license, including any administrative actions undertaken by the office.

SB859,9,25 (6) A license issued under this section may be renewed for the ensuing 24-month period upon the filing of an application containing all required documents and fees as provided in this section. A renewal application shall be filed on or before September 1 of the year in which the license expires. A renewal application filed with the office after September 1 that is accompanied by a $100 late fee is considered to be timely and sufficient. If an application for a renewal license has been filed with the office on or before the date the license expires, the license continues in effect until the issuance by the office of the renewal license applied for or until the office has notified the licensee in writing of the office's refusal to issue the renewal license together with the grounds on which the refusal is based. The office may refuse to issue a renewal license on any ground on which the office may refuse to issue an initial license.

SB859,10,12 (7) An applicant or licensee under this section shall notify the office, in writing, of any change in the information provided in the initial application for a license or the most recent renewal application for a license, as applicable, not later than 10 business days after the occurrence of the event that results in the change.

SB859,10,21 (8) The office may consider an application for a license under this section abandoned if the applicant fails to respond to any request for information required under this subchapter or any rule promulgated under this subchapter, as long as the office notifies the applicant, in writing, that the application will be considered abandoned if the applicant fails to submit the information within 60 days after the date on which the request for information is made. An application filing fee paid prior to the date an application is abandoned under this subsection may not be refunded. Abandonment of an application under this subsection does not preclude the applicant from submitting a new application for a license under this section.