LEGISLATIVE FISCAL ESTIMATE

[First Reprint]

SENATE, No. 3198

STATE OF NEW JERSEY

217th LEGISLATURE

 

DATED: DECEMBER 18, 2017

 

 

SUMMARY

 

Synopsis:

Establishes Office of Student Loan Ombudsman; regulates student loan servicers.

Type of Impact:

Indeterminate increase in State expenditures; Indeterminate increase in State revenue, equal to expenditure increase

Agencies Affected:

Department of Banking and Insurance.

 

 

Office of Legislative Services Estimate

Fiscal Impact

Annual

 

State Cost

Indeterminate

 

State Revenue

Indeterminate, equal to cost increase

 

 

 

 

·         The Office of Legislative Services (OLS) estimates that the enactment of Senate Bill No. 3198 (1R) of 2016 will result in an indeterminate increase in State costs, due to increased administrative duties performed by the Department of Banking and Insurance (DOBI) in establishing and maintaining the Office of the Student Loan Ombudsman and regulating certain student loan servicers.  Under the bill, these costs are regarded as administrative costs of the department.

 

·         The OLS expects that increased revenue will be generated from the collection of license fees, investigation fees, and penalties provided for under the bill, as well as possible increases in certain assessments imposed by the department.  Under the bill, revenue generated from the collection of new fees and penalties is to be expended on administering the bill.  The OLS, however, lacks information from which to determine whether the amount of revenue generated from these sources would provide sufficient funds for those expenses.  If insufficient, the department is likely to generate the necessary funds by increasing certain assessments imposed by department, which are based on expenditures incurred by or behalf of the department as a result of regulating the banking industry. In sum, increased revenue should equal increased costs.

BILL DESCRIPTION

 

Senate Bill No. 3198 (1R) of 2016 establishes the Office of the Student Loan Ombudsman within the Department of Banking and Insurance and requires the Commissioner of Banking and Insurance to regulate certain student loan servicers.  Under the bill, a “student loan servicer” means any person, wherever located, responsible for the servicing of any student education loan to any student loan borrower residing in the State.  

The bill requires that the ombudsman will, at a minimum:  (1) receive, review, and attempt to resolve any complaints from student loan borrowers; (2) compile and analyze data on student loan borrower complaints; (3) assist student loan borrowers to understand their rights and responsibilities; (4) provide information and make recommendations to the public, agencies, legislators, and others regarding the problems and concerns of student loan borrowers; (5) analyze and monitor the development and implementation of federal, State, and local laws, regulations, and policies relating to student loan borrowers; (6) review the complete student education loan history for any student loan borrower who has provided written consent for review; and (7) disseminate information concerning the availability of the Student Loan Ombudsman to assist student loan borrowers and potential student loan borrowers. 

No later than October 1, 2018, the ombudsman, in consultation with the commissioner, is required to establish and maintain a student loan borrower education course that will include educational presentations and materials regarding student education loans.  The commissioner is also required to annually submit a report to the standing reference committees of the General Assembly and Senate having cognizance of matters related to banking and higher education on the implementation and effectiveness of the provisions of the bill relating to the Office of the Student Loan Ombudsman.

The bill also requires student loan servicers to obtain a license from the commissioner before directly or indirectly acting as a student loan servicer. State or federally chartered banks, savings banks, savings and loan associations, and credit unions are exempt from the licensure requirement. Any person seeking to act within the State as a student loan servicer must make a written application to the commissioner accompanied by certain financial and criminal history documentation, a nonrefundable licensure fee of $1,000, and a nonrefundable investigation fee of $800.

The bill provides that licenses expire at the close of business on September 30 of the odd-numbered year following their issuance, unless renewed or earlier surrendered, suspended or revoked.  License renewal applications require the same documents and fees as an initial license application. 

The bill grants the commissioner the authority to conduct certain investigations and examinations for purposes of initial licensing, license renewal, license suspension, license revocation or termination, or general or specific inquiry or investigation to determine compliance, in which the commissioner may access, receive and use any books, accounts, records, files, documents, information or evidence.  In order to carry out these responsibilities, the bill provides that the commissioner may:  (1) retain attorneys, accountants, or other professionals and specialists; (2) enter into agreements or relationships with other government officials or regulatory associations; and (3) use, hire, contract or employ public or privately available analytical systems, methods or software to examine or investigate the student loan servicer licensee or any person subject to the bill.

The bill also provides that any person who violates any provision of the bill will be liable, in a civil action brought by the commissioner in a court of competent jurisdiction, for a penalty of not more than $5,000 for the first violation, $10,000 for the second violation and $15,000 for each subsequent violation.

All costs of the implementation of this bill are to be regarded as administrative costs of the department.  Moneys collected from license fees, inspections, or violations are to be expended by the commissioner for the purposes of administering the bill.

 

 

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

      None received.

 

OFFICE OF LEGISLATIVE SERVICES

 

      The OLS estimates that the enactment of Senate Bill No. 3198 (1R) of 2016 will result in an indeterminate increase in expenditures from the General Fund, due to administrative costs incurred by the DOBI in establishing and maintaining the Office of the Student Loan Ombudsman and regulating certain student loan servicers.  Under the bill, these costs are regarded as administrative costs of the department.  The OLS expects that increased revenue will be generated from the collection of license fees, investigation fees, and penalties provided for under the bill, as well as possible increases in certain assessments imposed by the department.  Under the bill, revenue generated from the collection of new fees and penalties is to be expended on administering the bill.  The OLS, however, lacks information from which to determine whether the amount of revenue generated from these sources would provide sufficient funds for those expenses.  If insufficient, the department is likely to generate the necessary funds by increasing certain assessments imposed by department, which are based on expenditures incurred by or behalf of the department as a result of regulating the banking industry. In sum, increased revenues should equal increased costs.

      Under the bill, DOBI may incur an initial one-time expense to establish a student loan borrower education course.  Furthermore, annual costs may result from: a) any salary and fringe benefits associated with the staff of the Office of the Student Loan Ombudsman; b) any other administrative expenses associated with the Office of the Student Loan Ombudsman; c) promotion, implementation, and review of the student loan borrower education course; and d) the additional licensure and enforcement responsibilities associated with regulating student loan servicers. 

      The bill provides that all revenue generated from fees and violations, as established by the bill, is to be expended on administering the bill.  However, it is unclear how many student loan servicers would be subject to the licensure requirements of the bill and how many infractions those servicers may commit on an annual basis.  As such, the OLS has insufficient information with which to estimate the total amount of revenue generated from these new sources, or whether that amount would provide sufficient funds to offset all of the administrative costs incurred by the department under the bill.  If insufficient, the department is likely to generate the necessary funds by increasing certain assessments imposed by department, which are based on expenditures incurred by or behalf of the department as a result of regulating the banking industry.

      The OLS notes that the licensure fees under the bill are collected on a biennial basis and expire at the close of business on September 30 of the odd numbered year following the issuance of the license.  Therefore, after the initial collection of such fees following enactment, it is likely that revenue will be greater during odd numbered years.

      This bill was modeled after Connecticut Substitute House Bill No. 6915 of 2015, which was enacted in July 2015.  The actual cost of that bill as enacted is unknown.  However, according to the Connecticut Office of Fiscal Analysis, the total FY 2017 cost of the bill was estimated to be $198,957, with $25,000 anticipated for the course development and the remaining expenditures associated with the ombudsman’s salary and fringe benefits.  The Office of Fiscal Analysis did not anticipate a fiscal impact resulting from the additional licensure and enforcement responsibilities of the state’s Banking Department.  Furthermore, the Office of Fiscal Analysis expected that 20 to 50 student loan servicers would be subject to the licensure requirements of the bill, providing a revenue range in FY 2017 from $36,000 to $90,000 from the biennial licensure ($1,000) and initial investigation ($800) fees provided under the bill. 

      Using this analysis, the maximum revenue estimated to be generated by the Connecticut bill is $108,957, short of the total estimated expenditures of the bill for FY 2017.  The OLS notes that this analysis does not include any estimated revenue generated from violations of the provisions of the bill.  The OLS further notes the anticipated $25,000 expense associated with the course development is assumed to be isolated to FY 2017, and therefore not an annual expense.

 

 

Section:

Commerce, Labor and Industry

 

Analyst:

Sarah M. Schmidt

Associate Research Analyst

Approved:

Frank W. Haines III

Legislative Budget and Finance Officer

 

 

This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.

 

This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).