July 28, 2019

Anthony Portantino, Chair

Senate Appropriations Committee
State Capitol, Room 2206
Sacramento, CA. 95814

RE: AB 376 Oppose Unless Amended

Dear Senator Portantino:

On behalf of the Student Loan Servicing Alliance (SLSA), I am again writing to inform
you of our continued opposition to Assembly Bill 376 (Stone) unless amended, which
would further regulate student loan servicers. SLSA is a non-profit, membership
organization of student loan servicers in the Federal Family Education Loan Program
(FFELP), Federal Direct Loan Program (FDLP), and the private student loan market.
SLSA has approximately 20 servicer members, and together we service about 95 percent
of all outstanding student loans. Our members provide the full range of servicing
operations, including customer service, conversion from in-school status to repayment,
payment processing, collections, and claims processing.

We endorse the goal of ensuring that California student loan borrowers receive the level
of service and support that they deserve. California has already implemented several
legislative proposals to address the student loan market, and there has been no time to
assess the impacts – good or bad. Regardless, this new measure creates even more
potential conflicts with federal regulations and statute and creates implementation
policies that are costly and difficult if not impossible, to execute. These conflicts have
not been resolved despite our ongoing efforts to work on alternative language to the
author over the past year. As you know, our members work on behalf of borrowers to
enroll them into the right payment plan a borrower chooses for their individual
circumstance, while helping them avoid delinquency and default. This is best achieved in
a clear and consistent regulatory environment.

Of the almost $1.6 trillion in outstanding student loans, around $1.3 trillion are federal
student loans, the vast majority of which are owned by the U.S. Department of Education
(ED) and funded directly by the U.S. Treasury, subject to federal oversight and
regulation. Private education loans are also subject to numerous existing state and federal
laws, which serve to protect student borrowers.

According to the CFPB, in January of 2020 there were about 500 student loan complaints
across the nation compared to 25,000 complaints directed at other consumer financial
products, such as mortgages and credit. That means complaints – whether even valid or
not or even having anything to do with a servicer – represent around 2% of all complaints

1100 Connecticut Ave., NW, Suite 1200 - Washington, DC – 22302

about financial servicers issues despite our servicing nearly 45 million student loan
borrowers. This means, based upon projections of the CA market size, there are just a
few dozen complaints – whether valid or not – during the same period. While we always
work for that number to be zero, the hard data clearly shows that student loan servicing is
hardly an area that requires duplicative and conflicting additional regulation.

SLSA has offered more than 40 amendments in good faith to work towards a measure
that our members can fully comply with the letter and intent of AB 376. We are
disappointed that, with the exception of a specific amendment to the private right of
action and a few drafting correcting amendments – both important steps forward - most
of our amendments have been declined. Below are some observations on the need for
further amendments:

• Disclosure and transparency can be very helpful, and we look forward to working
with California on ways to continue to improve that so that information is both
correct, but also has value to borrowers. We have suggested many common sense
and practical improvements that would achieve the end goals without creating
confusion, duplication, or excessive costs that detract from investment in our role
of working with borrowers.

• Loan terms, impacts of credit reporting, and many other topics surrounding
student loans are areas that are outside of our direct control. What we can control
is that the information we provide is accurate based upon the information we
have, that we correct any mistakes, and that we have robust processes in place to
respond to and resolve any complaints or issues. Many of our proposed
improvements recognize the unique servicer role and ensure good process for
borrowers.

• Servicers strongly support oversight by appropriate regulators that assesses our

compliance with existing law and helps us improve. However, this legislation
would encourage costly litigation on regulations even when a regulator has found
no factual basis for action against student loan servicers. While the right to cure
amendment helps reduce the potential costs meaningfully, servicers will still have
to face the expense of defending against the inevitable incorrect allegations, that
while perhaps well-intentioned, will be rooted in a lack of understanding of
student loan servicing or the complicated regulations which are applicable.

Specifically, there are several sections we continue to believe should be removed or

amended that are of meaningful concern and we view these as critically important to
improve the bill and make it practically workable. For example:

• Section 1788.102 (l) (1) explicitly would prohibit student loan servicers from
taking any action that would create a “negative” consequence stemming from a
payment made by a borrower, during a transfer of loans to another servicer, or if a
qualified request or qualified written request is ongoing. We are obligated to
meet federal requirements for reporting to credit bureaus, and this language
creates a conflict with those requirements. We believe it is our obligation to
 correct inaccurate reports and have twice offered language to reflect this
obligation.

• Payment application is critically important to get right, and has many practical
impacts not often considered. Further the concept of “in the best interest of the
borrower” is vague and undefined since many borrowers have different repayment
goals and desired outcomes. We have proposed changes in Chapter 2 by striking
sections (b) through (d) and creating an amended section (b) that would ensure the
borrower is clearly disclosed the payment allocation methodology and is fully
given the right to provide custom directions if they have a different desired
allocation that is permissible within the contract or law. This change ensures
borrower options, but also makes implementing those options practically
achievable for servicers.

• Chapter 5 includes market monitoring initiatives that have been rejected by other
regulators because they attempt to collect information which may not be
permitted under conflicting law and regulation, but also create substantial burden,
especially on the smaller and often non-profit servicers. This potential burden has
been assessed by other regulators and deemed to not be worth the costs imposed
on the servicing system, which could indirectly impact borrowers. We believe
that (d)(1) should be struck and conforming changes made accordingly.

While we had hope to come to agreement on several amendments to remove regulatory

conflicts and address workability issues, we have not yet achieved this outcome. As
such, SLSA must continue to oppose AB 376 unless further amended.

Thank you for your attention to and consideration of our concerns. I am available to
discuss this matter at (202) 955-6055, and Kathy Van Osten, who represents SLSA in
California, can be reached at (916) 605-9293.

Sincerely,

Scott Buchanan
Executive Director
Student Loan Servicing Alliance

cc: Assemblyman Mark Stone

Members, Senate Appropriations Committee
Janelle Miyashiro, Senate Appropriations Committee
Chantelle Denny, Senate Republican Policy Unit