Stone Introduces Bill to Reform Private Student Loan Collection
SACRAMENTO, CA - Assemblymember Mark Stone (D-Monterey Bay) has introduced legislation to protect private student loan borrowers from unsubstantiated lawsuits. AB 424 requires private student loan lenders and debt collectors to comply with common sense evidentiary standards when bringing debt collection lawsuits against borrowers.
When a borrower falls behind on loan payments, lenders and debt collectors pursue aggressive litigation, in an “assembly line” of lawsuits against the borrower. The plaintiffs in these cases are typically not the original lenders; rather, they are trusts, loan servicers, or debt collectors that purchase and bundle debts.
Plaintiffs may claim to be the holder of the loan, yet routinely fail to provide critical paperwork documenting the loan’s chain of ownership. The National Collegiate Student Loan Trust (NCT) holds 800,000 private student loans and is one of the nation’s largest holders of these loans. An audit of NCT loans revealed that NCT could not establish the chain of ownership for any of the 400 loans in the sample. Plaintiffs like NCT win many of these lawsuits automatically because borrowers are often unfamiliar with the judicial system and unable to afford representation. These lawsuits have a devastating impact on student borrowers and often result in garnished wages or seizure of federal benefits from bank accounts.
“As of June 2020, more than 650,000 Californians owed $10.3 billion in private student loan debt. Private student loans often have higher interest rates and offer fewer consumer protections than federal student loans,” said Stone. “Low-income and students of color are more likely to take out private loans and are often subjected to predatory practices that increase their debt burden and decrease their likelihood of pay-off. These lawsuits have a devastating impact on student borrowers, many of whom are already economically disenfranchised.”
AB 424 will help vulnerable communities by first establishing minimum evidentiary standards for lawsuits filed by private education lenders or loan collectors against borrowers. It will require lenders and collectors to provide specified records including, but not limited to: documentation establishing the chain of ownership, records of negotiations, and a log of collection attempts, which would be made available at the request of the borrower. AB 424 will also allow a borrower to pursue avenues of enforcement if a lender or collector fails to comply with provisions of this bill.
“Debt collectors have a notoriously poor track record for suing borrowers even though they don’t have the documents to prove that money is actually owed,” said Antonio Carrejo, Policy Counsel for Consumer Reports. “This bill will help stop these predatory practices by requiring lenders and debt collectors to properly substantiate their loan records before suing a borrower in court and when seeking to obtain a judgment.”
"For years, unscrupulous collectors have abused California's court system to falsify debts and pursue student loan borrowers with bogus lawsuits. Now, these companies are seeking to use a global health and economic crisis as a chance to profit," said Seth Frotman, Executive Director of the Student Borrower Protection Center. With this legislation, borrowers statewide will be protected against the predatory practices of these companies."
"Student borrowers with private student loans are often dragged into court by predatory student loan lenders and debt collectors making unsubstantiated legal claims because private student loans lack many important consumer protections,” said Samantha Seng, Education Policy Advisor, NextGen California. “Far too often, these targeted students are students of color and such lawsuits result in devastating economic consequences for borrowers who are already in dire financial straits.”
"If we truly believe access to higher education is going to level the playing field, then we must acknowledge the disproportionately higher rate of private loans assumed by low-income, Black, Latino, and students of color more broadly," said Kristin McGuire, Western Region Director at Young Invincibles. "These students are more likely to fall victim to predatory collection practices including unsubstantiated lawsuits."
"Too many Californians fall behind on their private student loans and fall victim to harassing debt collectors calling them at all hours, overwhelming them with paperwork, and invasively contacting their family, friends, and employers.," said Natalia Abrams Executive Director of the nonprofit Student Debt Crisis. "We applaud Assemblymember Mark Stone for taking much-needed action to protect private student loan borrowers, and stop unfair lawsuits by debt collectors with no evidence to support their claims.
AB 424 now awaits referral to a policy committee.