Add Art 42 §§1100 - 1108, Gen Bus L; amd §105, CPLR
Enacts protections for private education loan borrowers and cosigners; requires certain notifications from creditors and debt collectors; prohibits acceleration; enacts provisions for cosigner release.
STATE OF NEW YORK
________________________________________________________________________
362--A
Cal. No. 109
2023-2024 Regular Sessions
IN SENATE(Prefiled)
January 4, 2023
___________
Introduced by Sens. THOMAS, ADDABBO, JACKSON, PERSAUD, WEBB -- read
twice and ordered printed, and when printed to be committed to the
Committee on Consumer Protection -- recommitted to the Committee on
Consumer Protection in accordance with Senate Rule 6, sec. 8 --
reported favorably from said committee, ordered to first and second
report, ordered to a third reading, passed by Senate and delivered to
the Assembly, recalled, vote reconsidered, restored to third reading,
amended and ordered reprinted, retaining its place in the order of
third reading
AN ACT to amend the general business law and the civil practice law and
rules, in relation to protecting private education loan borrowers and
cosigners
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. The general business law is amended by adding a new article
2 42 to read as follows:
3 ARTICLE 42
4 PRIVATE EDUCATION LOAN PROTECTIONS
5 Section 1100. Definitions.
6 1101. Applicability.
7 1102. Exempt organizations.
8 1103. Provisions applicable to cosigners.
9 1104. Prohibition on acceleration of payments on private educa-
10 tion loans.
11 1105. Required communications from creditors and debt collec-
12 tors.
13 1106. Required information to be provided by creditors and debt
14 collectors.
15 1107. Enforcement.
16 1108. Rules and regulations.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD01638-04-4
S. 362--A 2
1 § 1100. Definitions. As used in this article:
2 1. "Private education loan" means an extension of credit that:
3 (a) is not made, insured, or guaranteed under title IV of the Higher
4 Education Act of 1965 (20 U.S.C. 1070 et seq.);
5 (b) is extended to a consumer expressly, in whole or in part, for
6 higher education expenses, regardless of whether the loan is provided by
7 the educational institution that the student attends;
8 (c) does not include open-end credit or any loan that is secured by
9 real property or a dwelling; and
10 (d) does not include an extension of credit in which the covered
11 educational institution is the creditor if:
12 (i) the term of the extension of credit is ninety days or less; or
13 (ii) an interest rate or finance charge will not be applied to the
14 credit balance and the term of the extension of credit is one year or
15 less, even if the credit is payable in more than four installments.
16 2. "Private education lender", except as exempted under this article,
17 means:
18 (a) any person or entity engaged in the business of securing, making,
19 or extending private education loans; or
20 (b) any holder of a private education loan.
21 3. "Borrower" or "private education loan borrower" means a person who
22 has received or agreed to pay a private education loan for such person's
23 own educational expenses.
24 4. "Cosigner" (a) means:
25 (i) any individual who is liable for the obligation of another without
26 compensation, regardless of how designated in the contract or instrument
27 with respect to that obligation, including an obligation under a private
28 education loan extended to consolidate a borrower's pre-existing private
29 education loans; and
30 (ii) includes any person the signature of which is requested as condi-
31 tion to grant credit or to forbear on collection;
32 (b) does not include a spouse of an individual described in subpara-
33 graph (i) of paragraph (a) of this subdivision, the signature of whom is
34 needed to perfect the security interest in a loan.
35 5. "Original creditor" means the private education lender identified
36 in a promissory note, loan agreement, or loan contract entered into with
37 a private education loan borrower or cosigner.
38 6. "Creditor" means:
39 (a) the original creditor, where ownership of a private education loan
40 debt has not been sold, assigned, or transferred;
41 (b) the person or entity that owned the private education loan debt at
42 the time the debt became delinquent or defaulted, even if that person or
43 entity did not originate the private education loan, and where such a
44 debt has not subsequently been sold, transferred or assigned; or
45 (c) a person or entity that purchased a delinquent or defaulted
46 private education loan debt for collection purposes, whether it collects
47 the debt itself, hires a third party for collection, or hires an attor-
48 ney for collection litigation.
49 7. "Debt collector" means any person who regularly collects or
50 attempts to collect, directly or indirectly, consumer debts originally
51 owed or due or asserted to be owed or due another. The term does not
52 include any officer or employee of a creditor who, in the name of the
53 creditor, collects debts for such creditor, but it does include any
54 creditor who, in the process of collecting its own debts, uses any name
55 other than its own which would indicate that a third person is collect-
56 ing or attempting to collect such debts.
S. 362--A 3
1 8. "Higher education expense" means any expense arising from higher
2 education, as defined in section two of the education law, regardless of
3 whether the higher education institution is accredited within New York
4 state.
5 § 1101. Applicability. 1. Any person or entity that enters into a
6 contract or subcontract with a private education lender or servicer to
7 perform the servicing of a private education loan must fulfill the obli-
8 gations of the private education lender under this article.
9 2. Any private education lender as described in subdivision two of
10 section eleven hundred of this article be jointly and severally liable
11 for the actions of the entity or person in fulfilling the obligations of
12 the private educational lender or servicer under this article.
13 § 1102. Exempt organizations. The following shall be exempt from the
14 provisions of this article only to the extent that state regulation is
15 preempted by federal law:
16 1. Any banking organization, foreign banking corporation, national
17 bank, federal savings association, federal credit union, or any bank,
18 trust company, savings bank, savings and loan association, or credit
19 union organized under the laws of any other state; and
20 2. Any subsidiary of such entities set forth in subdivision one of
21 this section.
22 § 1103. Provisions applicable to cosigners. 1. (a) Prior to the origi-
23 nation of a private education loan, the private education lender shall
24 provide to all cosigner applicants information about the rights and
25 responsibilities of the cosigner of the loan, including:
26 (i) information about how the private education lender will furnish
27 information about the cosigner's private education loan obligation to
28 credit reporting agencies;
29 (ii) information about how the cosigner will be notified if the
30 private education loan becomes delinquent, including how the cosigner
31 can cure the delinquency in order to avoid negative credit furnishing
32 and loss of cosigner release eligibility; and
33 (iii) information about eligibility for release of the cosigner's
34 obligation on the private education loan, including number of on-time
35 payments and any other criteria required to approve the release of
36 cosigner from the loan obligation.
37 (b) Lenders shall send borrowers and cosigners annual written notices
38 containing information about cosigner release, including criteria the
39 lender requires to approve the release of cosigner from the loan obli-
40 gation and the process for applying for cosigner release.
41 (c) Once the borrower has met the applicable consecutive on-time
42 payment requirement to be eligible for cosigner release, the lender
43 shall send the borrower and cosigner a written notification by U.S. mail
44 and by electronic mail, where a borrower has elected to receive elec-
45 tronic communications from the lender, informing the borrower and cosig-
46 ner that such person has met the applicable consecutive, on-time
47 payments requirement to be eligible for cosigner release. The notifica-
48 tion shall also include information about any additional criteria to
49 qualify for cosigner release, and the procedure to apply for cosigner
50 release.
51 (d) Lenders shall provide written notice within fifteen days to any
52 borrower who applies for cosigner release, but whose application is
53 incomplete. The written notice must include a description of the infor-
54 mation needed to consider the application complete and the date by which
55 the applicant should furnish the missing information.
S. 362--A 4
1 (e) After a borrower submits a complete application for cosigner
2 release, within thirty days, the lender shall send the borrower and
3 cosigner a written notice that informs the borrower and cosigner whether
4 the cosigner release application has been approved or denied. If the
5 lender denies a request for cosigner release, the lender shall inform
6 the borrower of such person's right to request all documents and infor-
7 mation used in the determination, including the credit score threshold
8 used by the lender, the borrower's consumer report, the borrower's cred-
9 it score, and any other documents specific to the borrower. The lender
10 must also provide any adverse action notices required under applicable
11 federal law if the denial is based in whole or in part on any informa-
12 tion contained in a consumer report.
13 2. (a) In response to any written or oral request for cosigner
14 release, lenders shall send the information described in paragraph (b)
15 of subdivision one of this section.
16 (b) Lenders shall not impose any restrictions that may permanently bar
17 a borrower from qualifying for cosigner release, including restricting
18 the number of times a borrower may apply for cosigner release.
19 (c) Lenders shall not impose any negative consequences on any borrower
20 or cosigner during the sixty days following the issuance of the notice
21 required under paragraph (d) of subdivision one of this section, or
22 until the lender makes a final determination about a borrower's cosigner
23 release application. For the purpose of this paragraph, "negative conse-
24 quences" includes, but is not limited to, the imposition of additional
25 eligibility criteria, negative credit reporting, lost eligibility for
26 cosigner release, late fees, interest capitalization, or other financial
27 injury.
28 (d) Lenders shall not require greater than twelve consecutive, on-time
29 payments as criteria to apply for cosigner release. Any borrower who has
30 paid the equivalent of twelve months of principal and interest payments
31 within any twelve-month period will be considered to have satisfied the
32 consecutive, on-time payment requirement, even if the borrower has not
33 made payments monthly during the twelve-month period.
34 (e) If a borrower or cosigner requests a change that restarts the
35 count of consecutive, on-time payments required for cosigner release,
36 the lender shall notify the borrower and cosigner in writing within ten
37 days of the impact of such an arrangement and provide the borrower or
38 cosigner the right to withdraw or reverse the request to avoid such
39 impact.
40 (f) The borrower has the right to request an appeal of a lender's
41 determination to deny the cosigner release application within ninety
42 days of receiving the lender's determination, and the lender shall
43 permit such borrower to submit additional documentation evidencing that
44 the borrower has the ability, willingness, and stability to handle such
45 person's payment obligations. The borrower may request review of the
46 cosigner release determination by another employee. The lender shall
47 inform the borrower of this right in a clear and conspicuous manner on
48 the notice denying the cosigner release application.
49 (g) A lender must establish and maintain a comprehensive record
50 management system reasonably designed to ensure the accuracy, integrity,
51 and completeness of data and other information about cosigner release
52 applications. This system shall include the number of cosigner release
53 applications received, the approval and denial rate, and the primary
54 reasons for any denial.
55 (h) If a cosigner has a total and permanent disability, as determined
56 by any federal agency, state agency, or physician or doctor of osteopa-
S. 362--A 5
1 thy legally authorized to practice in the state in which the cosigner
2 resides, the lender shall release the cosigner from the cosigner's obli-
3 gation to repay the loan upon receiving a notification of the cosigner's
4 total and permanent disability. The lender shall not require a new
5 cosigner to be added to the loan after the original cosigner has been
6 released from the loan.
7 3. (a) A lender shall provide a cosigner of a private education loan
8 with access to all documents or records related to the cosigned private
9 education loan that are available to the borrower;
10 (b) If a lender provides electronic access to documents and records
11 for a borrower, it shall provide equivalent electronic access to the
12 cosigner; and
13 (c) Upon receiving notice from the borrower or cosigner, the lender
14 shall redact the contact information of the other party.
15 § 1104. Prohibition on acceleration of payments on private education
16 loans. 1. Except as provided in subdivision two of this section, a
17 private education loan executed after the effective date of this article
18 may not include a provision that permits the private educational lender
19 to accelerate, in whole or in part, payments on the private education
20 loan.
21 2. A private education loan may include a provision that permits
22 acceleration of the loan in cases of payment default.
23 3. A lender shall not place any loan or account into default or accel-
24 erate a loan for any reason, other than for failure to pay.
25 4. (a) In the event of the death of a cosigner, a lender shall not
26 attempt to collect against the cosigner's estate, other than for failure
27 to pay.
28 (b) Upon receiving notification of the death or bankruptcy of a cosig-
29 ner, when the loan is not more than sixty days delinquent at the time of
30 the notification, a lender shall not change any terms or benefits under
31 the promissory note, repayment schedule, repayment terms, or monthly
32 payment amount or any other provision associated with the loan.
33 (c) A lender shall not place any loan or account into default or
34 accelerate a loan for any reason, other than for failure to pay.
35 § 1105. Required communications from creditors and debt collectors.
36 In addition to any other information required under applicable federal
37 or state law, a creditor or debt collector shall provide, in writing, in
38 the first debt collection communication with the private education loan
39 borrower or cosigner, or within five days thereafter, and at any other
40 time the borrower or cosigner requests such documentation:
41 1. The name of the current owner of the private education loan debt;
42 2. The original creditor's name at the time of origination and, if
43 different, at the time of sale of the loan, if applicable;
44 3. The original creditor's account number used to identify the private
45 education loan debt at the time of sale, if applicable;
46 4. The total outstanding amount owed at the time of default or the
47 amount due to bring the loan current if the loan is delinquent, but not
48 yet in default;
49 5. A schedule of all transactions credited or debited to the private
50 education loan account;
51 6. A copy of all pages of the contract, application or other documents
52 stating all terms and conditions applicable to the private education
53 loan and evidencing the private education loan borrower's or cosigner's
54 liability for the private education loan; and
55 7. A clear and conspicuous statement disclosing that the borrower or
56 cosigner has a right to request all information possessed by the credi-
S. 362--A 6
1 tor related to the private education loan debt, including, but not
2 limited to the information included in section eleven hundred six of
3 this article.
4 § 1106. Required information to be provided by creditors and debt
5 collectors. 1. A creditor or debt collector may not collect or attempt
6 to collect a private education loan debt unless the creditor or debt
7 collector possesses the following:
8 (a) The name of the owner of the private education loan;
9 (b) The original creditor's name at the time of sale of the loan or
10 default, if applicable;
11 (c) The original creditor's account number used to identify the
12 private education loan at the time of sale or default, if the original
13 creditor used an account number to identify the private education loan
14 at the time of sale or default;
15 (d) The amount due at the time of sale, or at default, or, if the loan
16 is delinquent, to bring the loan current;
17 (e) A schedule of all transactions credited or debited to the private
18 education loan account;
19 (f) An itemization of interest and fees, if any, claimed to be owed
20 and whether those were imposed by the original creditor or any subse-
21 quent owners of the private education loan;
22 (g) The date that the private education loan was incurred;
23 (h) A billing statement or other account record indicating the date of
24 the first partial payment and/or the first day that a payment was
25 missed, whichever is earlier;
26 (i) A billing statement or other account record indicating the date of
27 the last payment made by the borrower or cosigner, if applicable;
28 (j) Any payments, settlement, or financial remuneration of any kind
29 paid to the creditor by a guarantor, cosigner, or surety, and the amount
30 of payment received;
31 (k) A copy of the self-certification form and any other "needs analy-
32 sis" conducted by the original creditor prior to origination of the
33 loan;
34 (l) A log of all collection attempts made in the previous twelve
35 months including date and time of all calls and written communications;
36 (m) Copies of all written settlement offers sent in the last twelve
37 months, or, in the alternative, a statement that the creditor has not
38 attempted to settle or otherwise renegotiate the debt prior to suit;
39 (n) Copies of all collection letters sent to the borrower and cosigner
40 since inception of the loan;
41 (o) Documentation establishing that the creditor is the owner of the
42 specific individual private education loan at issue. If the private
43 education loan was assigned more than once, the creditor must possess
44 each assignment or other writing evidencing the transfer of ownership of
45 the specific individual private education loan to establish an unbroken
46 chain of ownership, beginning with the original creditor to the first
47 subsequent creditor and each additional creditor. Each assignment or
48 other writing evidencing transfer of ownership or the right to collect
49 must contain the original creditor's account number (redacted for secu-
50 rity purposes to show only the last four digits) of the private educa-
51 tion loan purchased or otherwise assigned, the date of purchase and
52 assignment, and must clearly show the borrower's, and if applicable,
53 cosigner's correct name associated with the original account number. The
54 assignment or other writing attached shall be that by which the creditor
55 or other assignee acquired the private education loan, not a document
56 prepared for litigation or collection purposes;
S. 362--A 7
1 (p) A copy of all pages of the contract, application or other docu-
2 ments evidencing the private education loan borrower's, and if applica-
3 ble, cosigner's liability for the private education loan, stating all
4 terms and conditions applicable to the private education loan; and
5 (q) A signed affidavit or affidavits from each of the previous owners
6 of the private education loan regarding when the previous owner acceler-
7 ated the loan from delinquency status to default status, or if applica-
8 ble, a statement that no such acceleration occurred.
9 2. Upon written or oral request from a borrower or cosigner for any
10 information that a creditor or debt collector is required to possess
11 pursuant to subdivision one of this section, a creditor or debt collec-
12 tor shall send the requested information to the borrower or cosigner
13 within fifteen days of receipt of the request.
14 § 1107. Enforcement. 1. All private education lenders, creditors and
15 debt collectors shall comply with the provisions of this article.
16 2. Whenever it appears to the attorney general, either upon complaint
17 or otherwise, that any person or persons, have suffered damage as a
18 result of a violation of this article by a private education lender,
19 creditor, or debt collector covered by these provisions, the attorney
20 general may bring an action or special proceeding in the name and on
21 behalf of the people of the state of New York to enjoin any violation of
22 this article, to recover or obtain any of the following:
23 (a) actual damages;
24 (b) correction of any inaccurate, negative reporting by the lender,
25 creditor, or debt collector to any credit reporting agency;
26 (c) injunctive relief; and
27 (d) any other relief that the court deems proper.
28 § 1108. Rules and regulations. In addition to such powers as may
29 otherwise be prescribed by this chapter, the attorney general is hereby
30 authorized and empowered to promulgate such rules and regulations as may
31 in the judgment of the attorney general be consistent with the purposes
32 of this article, or appropriate for the effective administration of this
33 article, including, but not limited to:
34 (a) such rules and regulations in connection with the activities of
35 private education lenders, creditors, and debt collectors as may be
36 necessary and appropriate for the protection of borrowers in this state;
37 (b) such rules and regulations as may be necessary and appropriate to
38 define unfair, deceptive or abusive acts or practices in connection with
39 the activities of private education lenders, creditors, and debt collec-
40 tors;
41 (c) such rules and regulations as may define the terms used in this
42 article and as may be necessary and appropriate to interpret and imple-
43 ment the provisions of this article; and
44 (d) such rules and regulations as may be necessary for the enforcement
45 of this article.
46 § 2. Subdivision (q-1) of section 105 of the civil practice law and
47 rules, as added by chapter 593 of the laws of 2021, is amended to read
48 as follows:
49 (q-1) Original creditor. The term "original creditor" means the entity
50 that owned a consumer credit account at the date of default giving rise
51 to a cause of action, except that if the consumer credit account is a
52 private education loan, as defined in subdivision one of section eleven
53 hundred of the general business law, "original creditor" means the
54 private education lender identified in a promissory note, loan agree-
55 ment, or loan contract entered into with a private education loan
56 borrower or cosigner.
S. 362--A 8
1 § 3. Severability. If any clause, sentence, paragraph, subdivision,
2 section or part of this act shall be adjudged by any court of competent
3 jurisdiction to be invalid, such judgment shall not affect, impair, or
4 invalidate the remainder thereof, but shall be confined in its operation
5 to the clause, sentence, paragraph, subdivision, section or part thereof
6 directly involved in the controversy in which such judgment shall have
7 been rendered. It is hereby declared to be the intent of the legislature
8 that this act would have been enacted even if such invalid provisions
9 had not been included herein.
10 § 4. This act shall take effect on the sixtieth day after it shall
11 have become a law.
