Effective January 1, 2021, California implemented the Student Borrower Bill of Rights (“SBBOR”). This is a great consumer protection law for all those bearing the burden of student loan debt. The law is codified in Civil Code §1788.100.
Who Is Affected by the Law
The SBBOR applies to both borrowers and co-borrowers. It has special protections for borrowers with disabilities, military service members, senior citizens, and those working in public service. It regulates servicers which it defines as entities that receive and apply payments on student loans. (Civ. Code §1788.100(p)). The SBBOR also applies to refinances of student loans.
What the Law Prohibits
Servicers are generally prohibited from abusive acts or practices. This prohibition includes interfering with a borrower's ability to understand the terms and conditions of a loan. (Civ. Code §1788.10(a)). Servicers cannot defraud or mislead a borrower or misapply payments. (Civ. Code §1788.100(b)). Servicers cannot mislead military borrowers, employees in public service, older borrowers or those with disabilities about any available programs or protections.
Rules of the Road
Servicers are now required by law to post and process student loan payments in a timely manner. (Civ. Code §1788.102(a)). This requires that the servicers payment processing policies shall be disclosed and readily accessible. They must ask the borrower how to apply an overpayment. Absent contradictory instructions, servicers now have an obligation to apply payments in the best financial interest of a student loan borrower. This would require applying payments to the loan with the highest interest rate on the borrower's account.
There now exists a requirement for student loan servicers to timely process its paperwork. (Civ. Code §1788.102(g)(1)). This will be very helpful for borrowers who are seeking repayment assistance.
Qualified Request & Qualified Written Request
Servicers now have duties to respond to disputes and requests for information from borrowers. The SBBOR defines a “qualified request” as one made over the telephone which requests specific information or reports an error. (Civ. Code §1788.100(n)). A “qualified written request” (“QWR”) is a request made in writing (including email) detailing an error or requesting information like a payment history.
A servicer must respond to a QWR within 30 business days and provide information related to the request and the action the student loan servicer with taking to correct the account or an explanation that the account is correct. (Civ. Code §1788.102(t)(1)). Servicers must also have policies and procedures to escalate disputes by borrowers.
Transfers of Student Loans
If a student loan is transferred the servicer must notify the borrower of the new servicer 15 days before the borrower is required to send in a payment. (Civ. Code §1788.102(m)).
California also has the Educational Debt Collection Practices Act (“EDCPA”) which prohibits schools from withholding transcripts for a current or former student on the grounds that the student owes a debt. (Civ. Code §1788.90 et seq.).
Enforcement of the SBBOR
Any consumer who suffers damage from the result of the failure of a service to comply with this new law can bring a private right of action. (Civ. Code §1788.103(b)). The consumer can recover actual damages which shall be no less than $500 per plaintiff, per violation (not per case), punitive damages, and attorney's fees. If the violation substantially interfered with a borrower's right to an alternative payment arrangement or another financial benefit then the court shall award treble actual damages of no less than $1500 per plaintiff, per violation.
Prior to filing an action under the SBBOR a consumer must provide written notice to the servicer 45 days prior to filing the action. (Civ. Code §1788.103(d)). This notice must be sent via certified or registered mail, return receipt requested to the address on file with the Department of Business Oversight or to their principal place of business in California.
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