District of Columbia adopts student loan borrower bill of rights

By Richard Roth, J.D.

The District of Columbia has established a student loan borrower bill of rights that is intended to set basic principles and ensure protections for borrowers. The five articles of the bill of rights address loan pricing and terms, abusive loan products, underwriting, collection practices, and customer service, according to the D.C. Department of Insurance, Securities and Banking.

Terms and price. The bill of rights generally calls on lenders to comply with the Truth in Lending Act and Reg. Z—Truth in Lending (12 CFR Part 1026). Specific requirements include the use of plain English and the disclosure of loan pricing and terms in ways that will facilitate comparison shopping.

No abusive products. Lenders should offer only loans that match the borrower’s intended use. New credit should not be offered to borrowers who cannot repay previous loans—in other words, there should be no “debt traps.” The bill of rights also says that when a fixed-fee loan is refinanced or modified, additional fees should not be charged based on the outstanding principal unless the borrower receives a “tangible cost benefit.”

Underwriting. Four underwriting principles are spelled out:

1. Credit should be offered only if there is “high confidence” that the borrower will be able to repay the loan without defaulting or re-borrowing.
2. Loans a borrower cannot truly afford should not be made, even if the lender in fact can find a way to secure payment. Also, servicers should not derive unreasonable fees from late fees or comparable charges.
3. Loans should be made to meet the borrower’s need, not to generate more revenue for the lender, even if the borrower could qualify for a larger loan.
4. Lenders should check credit reports before they extend loans, and they should report the borrower’s performance to credit bureaus.

Collections. Lenders and servicers should treat borrowers in accordance with the Fair Debt Collection Practices Act. They should carefully watch over third-party debt collectors, and all companies involved in collections should keep complete and accurate account information.

Customer service. Lenders and servicers should acknowledge customer complaints promptly, preferably within five days, and all complaints should be resolved in a timely manner. Borrowers should be informed of any changes in information such as the servicer’s address or the sale of the loan. The bill of rights also includes a broad anti-discrimination policy that extends to sexual orientation and sexual identity.

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