LEGISLATIVE FISCAL ESTIMATE
[First Reprint]
SENATE, No. 1149
STATE OF NEW JERSEY
218th LEGISLATURE
DATED: JULY 17, 2019
SUMMARY
|
Synopsis: |
Provides for appointment of Student Loan Ombudsman and regulates student loan servicers. |
|
Type of Impact: |
Annual increases in State expenditures and revenue; General Fund. |
|
Agencies Affected: |
Department of Banking and Insurance; Higher Education Student Assistance Authority; the Judiciary. |
|
Office of Legislative Services Estimate |
||
|
Fiscal Impact |
Annual |
|
|
State Expenditure Increase |
Indeterminate |
|
|
State Revenue Increase |
Indeterminate |
|
|
|
|
|
· The Office of Legislative Services (OLS) estimates that the bill will result in an indeterminate increase in annual State expenditures. The Department of Banking and Insurance (DOBI) will incur an indeterminate increase in annual administrative expenditures in regulating certain student loan servicers; enforcing the provisions of this bill; establishing the position of the Student Loan Ombudsman; and providing staff support to the ombudsman. In addition, DOBI and the Higher Education Student Assistance Authority will incur indeterminate one-time expenses to develop a student loan borrower education course and periodic expenses to maintain the course. The Judiciary may also incur additional expenditures insofar as the provisions of the bill will give rise to litigation that otherwise would not occur.
· The OLS anticipates that this bill will cause an indeterminate increase in annual State revenue from student loan servicer assessments, license fees, investigation fees, and penalties resulting from violations of the provisions of the bill. The revenues are to defray the administrative expenses the State will incur as a result of the legislation.
BILL DESCRIPTION
This bill provides for the licensure and regulation of student loan servicers by DOBI and the designation within that department of a Student Loan Ombudsman.
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;
(7) disseminate information concerning the availability of the Student Loan Ombudsman to assist student loan borrowers and potential student loan borrowers; and
(8) establish by October 1, 2020 and maintain a student loan borrower education course in collaboration with the Higher Education Student Assistance Authority.
Under the bill, student loan servicers are required to obtain an annual license from DOBI 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. The annual license fee equals $5,000. Applicants must also pay an investigation fee in such an amount as the department determines before DOBI will investigate the financial condition and responsibility, financial and business experience, character and general fitness of the applicant.
The bill provides that DOBI will automatically issue a limited, irrevocable license to any person servicing a student loan under a contract with the United States Department of Education. That person will be exempt from the required application procedures, other than the payment of the required licensure fee and investigation fee, to the extent the person is servicing federal loans.
The bill grants DOBI 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.
A student loan servicer must keep on file with DOBI a minimum surety bond of $30,000. The department will determine who will be eligible to receive protection afforded by the bond and may increase the required bond amount.
Anyone who violates any of the bill’s provisions will be liable, in a civil action brought by DOBI in a court of competent jurisdiction, for a penalty of not more than $10,000 for the first violation and $20,000 for each subsequent violation. In addition, a student loan borrower who suffers any loss of moneys as a result of a student loan servicer’s unlawful practice may bring an action in a court of competent jurisdiction.
The bill requires a student loan servicer licensee to annually file a report with DOBI on the business conducted as a licensee. The failure to file the annual report as required by DOBI will be subject to a penalty in an amount not to exceed $100 per day of violation.
Lastly, in addition to moneys collected from license and inspection fees and penalties, the bill provides for an annual assessment on student loan servicers sufficient to cover the State’s annual cost of implementing the provisions of the bill.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS anticipates that the bill will result in indeterminate annual expenditure and revenue increases to the State General Fund.
Expenditure Increases: DOBI will incur an indeterminate increase in annual administrative expenditures in regulating certain student loan servicers; enforcing the provisions of this bill; establishing the position of the Student Loan Ombudsman; and providing staff support to the ombudsman. In addition, DOBI and the Higher Education Student Assistance Authority will incur indeterminate one-time expenses to develop a student loan borrower education course and periodic expenses to maintain the course. The Judiciary may also incur additional expenditures insofar as the provisions of the bill will give rise to litigation that otherwise would not occur.
Although the OLS has not received any information concerning the manner in which DOBI and the Higher Education Student Assistance Authority would implement the responsibilities established by the legislation, legislative fiscal offices in Connecticut and Maryland have estimated the cost of similar legislation in their respective states. The estimates may serve as points of reference in assessing the State expenditure increase the bill may cause.
This bill was modeled after Connecticut Substitute House Bill No. 6915 of 2015. The Connecticut Office of Fiscal Analysis estimated the total FY 2017 cost of the bill to be $198,957, composed of $95,095 for the ombudsman’s salary, $78,862 for fringe benefits, and $25,000 for the development of the student loan borrower education course. 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. The OLS notes the anticipated $25,000 expense associated with the course development was assumed to be a one-time expense.
Furthermore, the Department of Legislative Services of the Maryland General Assembly published a Fiscal and Policy Note on House Bill No. 1642 of 2018, which has a similar structure to Connecticut’s bill. The document indicates that the Maryland Office of the Commissioner of Financial Regulation anticipated adding two positions to implement the legislation. In all, General Fund expenditures would increase by $196,400 in FY 2020.
Revenue Increase: The OLS estimates that this bill will cause an indeterminate increase in annual State General Fund revenue from student loan servicer assessments, license fees, investigation fees, and penalties resulting from violations of the provisions of the bill.
The bill provides that all revenue generated from fees and violations is to be expended for the administrative costs associated with the bill. However, it is unclear how many student loan servicers would be subject to the licensure requirements and how many infractions those servicers may commit. As such, the OLS has insufficient information with which to estimate the total amount of fee and penalty revenue the bill will generate.
The OLS notes, however, that Connecticut has enacted Substitute House Bill No. 6915 of 2015, which instituted a licensure requirement for student loan servicers. According to the Connecticut Department of Banking, as of June 1, 2019, there were 49 active student loan servicer licensees in Connecticut. At the bill’s $5,000 annual license fee, if 49 student loan servicer licenses were issued in New Jersey, DOBI would collect $245,000 per year. To that amount would have to be added collections from the investigation fees. Given that the bill grants DOBI substantial discretion in the setting of the fee, the OLS cannot forecast the fee amount and hence total investigation fee collections.
In addition, DOBI will be authorized to impose an annual assessment on student loan servicer licensees in an amount sufficient to cover the annual cost of implementing the bill. Considering the aforementioned uncertainty regarding the cost of the bill and the amount of fees and penalties that will be collected, the OLS cannot determine whether an assessment will become necessary, and, if so, at what rate.
|
Section: |
Commerce, Labor and Industry |
|
Analyst: |
Associate Fiscal 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.).