Protect Student Loan Borrowers

Section 1. The general business law is amended by adding a new article 42-A to read as follows:

ARTICLE 42-A

PRIVATE EDUCATION LOAN PROTECTIONS Section 1200. Definitions.

1201. Applicability.

1202. Exempt organizations.

1203. Provisions applicable to cosigners.

1204. Prohibition on acceleration of payments on private educa-

tion loans.

1205. Required communications from creditors and debt collec-

tors.

1206. Required information to be provided by creditors and debt

collectors.

1207. Enforcement.

1208. Rules and regulations.

EXPLANATION--Matter in italics (underscored) is new; matter in brackets

[ ] is old law to be omitted.

LBD08810-07-6

1209. Penalties.

§ 1200. Definitions. As used in this article:

1. "Private education loan" or "loan" means an extension of credit that:

(a) is not made, insured, or guaranteed under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.);

(b) is extended to a consumer expressly, in whole or in part, for higher education expenses, regardless of whether the loan is provided by the educational institution that the student attends;

(c) does not include open-end credit or any loan that is secured by real property or a dwelling; and

(d) does not include an extension of credit in which the covered educational institution is the creditor if:

(i) the term of the extension of credit is ninety days or less; or

(ii) an interest rate or finance charge will not be applied to the credit balance and the term of the extension of credit is one year or less, even if the credit is payable in more than four installments.

2. "Private education lender" or "lender" except as exempted under this article, means:

(a) any person or entity engaged in the business of securing, making, or extending private education loans; or

(b) any holder of a private education loan.

3. "Borrower" or "private education loan borrower" means a person who has received or agreed to pay a private education loan for such person's own educational expenses.

4. "Cosigner" (a) means:

(i) any individual who is liable for the obligation of another without compensation, regardless of how designated in the contract or instrument with respect to that obligation, including an obligation under a private education loan extended to consolidate a borrower's pre-existing private education loans; and

(ii) includes any person the signature of which is requested as condition to grant credit or to forbear on collection;

(b) does not include a spouse of an individual described in subparagraph (i) of paragraph (a) of this subdivision, the signature of whom is needed to perfect the security interest in a loan.

5. "Original creditor" means the private education lender identified in a promissory note, loan agreement, or loan contract entered into with a private education loan borrower or cosigner.

6. "Creditor" means:

(a) the original creditor, where ownership of a private education loan debt has not been sold, assigned, or transferred;

(b) the person or entity that owned the private education loan debt at the time the debt became delinquent or defaulted, even if that person or entity did not originate the private education loan, and where such a debt has not subsequently been sold, transferred or assigned; or

(c) a person or entity that purchased a delinquent or defaulted private education loan debt for collection purposes, whether it collects the debt itself, hires a third party for collection, or hires an attorney for collection litigation.

7. "Debt collector" means any person who regularly collects or attempts to collect, directly or indirectly, consumer debts originally owed or due or asserted to be owed or due another. The term does not include any officer or employee of a creditor who, in the name of the creditor, collects debts for such creditor, but it does include any creditor who, in the process of collecting its own debts, uses any name other than its own which would indicate that a third person is collecting or attempting to collect such debts.

8. "Higher education expense" means any expense arising from higher education, as defined in section two of the education law, regardless of whether the higher education institution is accredited within New York state.

§ 1201. Applicability. 1. Any person or entity that enters into a contract or subcontract with a private education lender or servicer to perform the servicing of a private education loan must fulfill the obligations of the private education lender under this article.

2. Any private education lender as described in subdivision two of section twelve hundred of this article be jointly and severally liable for the actions of the entity or person in fulfilling the obligations of the private education lender or servicer under this article.

§ 1202. Exempt organizations. The following shall be exempt from the provisions of this article only to the extent that state regulation is preempted by federal law:

1. Any banking organization, foreign banking corporation, national bank, federal savings association, federal credit union, or any bank, trust company, savings bank, savings and loan association, or credit union organized under the laws of any other state; and

2. Any subsidiary of such entities set forth in subdivision one of this section.

§ 1203. Provisions applicable to cosigners. 1. (a) Prior to the origination of a private education loan, the private education lender shall provide to all cosigner applicants information about the rights and responsibilities of the cosigner of the loan, including:

(i) information about how the private education lender will furnish information about the cosigner's private education loan obligation to credit reporting agencies;

(ii) information about how the cosigner will be notified if the private education loan becomes delinquent, including how the cosigner can cure the delinquency in order to avoid negative credit furnishing and loss of cosigner release eligibility; and

(iii) information about eligibility for release of the cosigner's obligation on the private education loan, including number of on-time payments and any other criteria required to approve the release of cosigner from the loan obligation.

(b) Lenders shall send borrowers and cosigners annual written notices containing information about cosigner release, including criteria the lender requires to approve the release of cosigner from the loan obligation and the process for applying for cosigner release.

(c) Once the borrower has met the applicable consecutive on-time payment requirement to be eligible for cosigner release, the lender shall send the borrower and cosigner a written notification by U.S. mail and by electronic mail, where a borrower has elected to receive electronic communications from the lender, informing the borrower and cosigner that such person has met the applicable consecutive, on-time payments requirement to be eligible for cosigner release. The notification shall also include information about any additional criteria to qualify for cosigner release, and the procedure to apply for cosigner release.

(d) Lenders shall provide written notice within fifteen days to any borrower who applies for cosigner release, but whose application is incomplete. The written notice must include a description of the information needed to consider the application complete and the date by which the applicant should furnish the missing information.

(e) After a borrower submits a complete application for cosigner release, within thirty days, the lender shall send the borrower and cosigner a written notice that informs the borrower and cosigner whether the cosigner release application has been approved or denied. If the lender denies a request for cosigner release, the lender shall inform the borrower of such person's right to request all documents and information used in the determination, including the credit score threshold used by the lender, the borrower's consumer report, the borrower's credit score, and any other documents specific to the borrower. The lender must also provide any adverse action notices required under applicable federal law if the denial is based in whole or in part on any information contained in a consumer report.

2. (a) In response to any written or oral request for cosigner release, lenders shall send the information described in paragraph (b) of subdivision one of this section.

(b) Lenders shall not impose any restrictions that may permanently bar a borrower from qualifying for cosigner release, including restricting the number of times a borrower may apply for cosigner release.

(c) Lenders shall not impose any negative consequences on any borrower or cosigner during the sixty days following the issuance of the notice required under paragraph (d) of subdivision one of this section, or until the lender makes a final determination about a borrower's cosigner release application. For the purpose of this paragraph, "negative consequences" includes, but is not limited to, the imposition of additional eligibility criteria, negative credit reporting, lost eligibility for cosigner release, late fees, interest capitalization, or other financial injury.

(d) Lenders shall not require greater than twelve consecutive, on-time payments as criteria to apply for cosigner release. Any borrower who has paid the equivalent of twelve months of principal and interest payments within any twelve-month period will be considered to have satisfied the consecutive, on-time payment requirement, even if the borrower has not made payments monthly during the twelve-month period.

(e) If a borrower or cosigner requests a change that restarts the count of consecutive, on-time payments required for cosigner release, the lender shall notify the borrower and cosigner in writing within ten days of the impact of such an arrangement and provide the borrower or cosigner the right to withdraw or reverse the request to avoid such impact.

(f) The borrower has the right to request an appeal of a lender's determination to deny the cosigner release application within ninety days of receiving the lender's determination, and the lender shall permit such borrower to submit additional documentation evidencing that the borrower has the ability, willingness, and stability to handle such person's payment obligations. The borrower may request review of the cosigner release determination by another employee. The lender shall inform the borrower of this right in a clear and conspicuous manner on the notice denying the cosigner release application.

(g) A lender must establish and maintain a comprehensive record management system reasonably designed to ensure the accuracy, integrity, and completeness of data and other information about cosigner release applications. This system shall include the number of cosigner release applications received, the approval and denial rate, and the primary reasons for any denial.

(h) If a cosigner becomes totally and permanently disabled, as determined by any federal agency, state agency, or physician or doctor of osteopathy legally authorized to practice in the state in which the cosigner resides, the lender shall release the cosigner from the cosigner's obligation to repay the loan upon receiving a notification of the cosigner's total and permanent disability. The lender shall not require a new cosigner to be added to the loan after the original cosigner has been released from the loan.

(i) If the borrower dies, the lender shall release the cosigner from the cosigner's obligation to repay the loan upon receiving notification of the borrower's death.

3. (a) A lender shall provide a cosigner of a private education loan with access to all documents or records related to the cosigned private education loan that are available to the borrower;

(b) If a lender provides electronic access to documents and records for a borrower, it shall provide equivalent electronic access to the cosigner; and

(c) Upon receiving notice from the borrower or cosigner, the lender shall redact the contact information of the other party.

§ 1204. Prohibition on acceleration of payments on private education loans. 1. Except as provided in subdivision two of this section, a private education loan executed after the effective date of this article may not include a provision that permits the private education lender to accelerate, in whole or in part, payments on the private education loan.

2. A private education loan may include a provision that permits acceleration of the loan in cases of payment default.

3. A lender shall not place any loan or account into default or accelerate a loan for any reason, other than for failure to pay.

4. (a) In the event of the death of a cosigner, a lender shall not attempt to collect against the cosigner's estate, other than for failure to pay.