September 14, 2021

As we speak, United States Senators Chris Van Hollen (D-Md.), Elizabeth Warren (D-Mass.), Sherrod Brown (D-Ohio), Cory Booker (D-N.J.), Tammy Baldwin (D-Wis.), Richard Blumenthal (D-Conn.), Raphael Warnock (D-Ga.), and Tina Smith (D-Minn.), despatched a letter to Division of Schooling Secretary Miguel Cardona in assist of a current re-interpretation of Division coverage that may considerably improve oversight and accountability of the scholar mortgage program and its contractors by ending federal obstruction of state-level efforts to guard scholar mortgage debtors. Their letter requires the Division to develop this method to state legal guidelines that defend scholar mortgage debtors and contract negotiations with servicers. Their letter is in response to a request for public remark.

Beneath former Schooling Secretary Betsy DeVos, the Division took the place that state regulation of mortgage servicers was broadly preempted by the Federal authorities’s oversight function. Federal courts repeatedly rejected this place. This coverage interfered with state regulators exercising their authority to guard shoppers of their states and prevented states from conducting supervisory examinations of mortgage servicers. It additionally obstructed state enforcement actions by permitting scholar mortgage servicers to withhold from states the paperwork and information wanted to establish misconduct.

“We urge you to use this robust preemption framework outlined to state legal guidelines that present extra protections to scholar mortgage debtors, equivalent to requiring mortgage servicers to be licensed or have in place criticism processing protocols,” wrote the senators. “When servicers or different contractors take positions that impede Federal or state oversight, they need to face penalties beneath their present contracts and in future allocations and renewals. We strongly urge you to include accountability for abusive and unlawful shopper practices and for failure to cooperate with Federal and state regulators into the continued administration of the scholar mortgage program.” 

See the total textual content of the letter right here and beneath.

Pricey Secretary Cardona:

We write in assist of your current revised authorized interpretation of Federal preemption and joint Federal-state regulation and oversight of scholar loans and mortgage servicers. This welcome revision to the Division of Schooling’s (“the Division”) coverage will considerably improve oversight and accountability of the scholar mortgage program and its contractors by empowering state regulators to higher defend debtors and shoppers.

The earlier Administration’s coverage that state regulation of mortgage servicers was broadly preempted by the Federal authorities’s oversight function was legally flawed. Federal courts repeatedly rejected this place as unsound and an unjustified departure from the Division’s prior place. The earlier Administration’s coverage additionally interfered with state regulators exercising their authority to guard shoppers of their states. This coverage prevented states from conducting supervisory examinations of mortgage servicers. It additionally obstructed state enforcement actions by withholding from states the paperwork and information that they wanted to carry mortgage servicers accountable for misconduct.  

The revised interpretation is just not solely legally sound, however will even have substantial advantages for debtors. State attorneys normal have been on the forefront of oversight of scholar mortgage servicers in recent times, uncovering widespread patterns of deceptive and abusive conduct and profitable important settlements for debtors of their states. For instance, Massachusetts Legal professional Normal Maura Healey not too long ago reached a settlement with the Pennsylvania Increased Schooling Help Company (PHEAA) requiring an audit and correction for any Massachusetts borrower who could have been harmed by PHEAA’s errors or misconduct, which may have an effect on greater than 200,000 debtors. The Division’s revised interpretation additionally acknowledges that, in partnership with the Division’s personal oversight and the Shopper Monetary Safety Bureau, state regulators play an important function in figuring out and addressing misconduct that hurts debtors and shoppers. The revised interpretation of federal preemption will encourage stronger partnership to carry mortgage servicers and different scholar mortgage contractors accountable.

We urge you to use this robust preemption framework outlined to state legal guidelines that present extra protections to scholar mortgage debtors, equivalent to requiring mortgage servicers to be licensed or have in place criticism processing protocols. By explicitly endorsing these partnerships, the Division can additional align Federal and state actions to guard and assist debtors and shoppers. 

Past this discover of interpretation, we strongly urge you to hold these preemption ideas ahead in your contract negotiations with mortgage servicers. When servicers or different contractors take positions that impede Federal or state oversight, they need to face penalties beneath their present contracts and in future allocations and renewals. We strongly urge you to include accountability for abusive and unlawful shopper practices and for failure to cooperate with Federal and state regulators into the continued administration of the scholar mortgage program. Future contracts should embrace significant incentives for transparency and improved service and protections for debtors.

Thanks in your work on this essential concern. We look ahead to working with you to enhance the scholar mortgage system in order that it places college students and debtors first.