Texas’s “business-friendly” reputation remains under threat as policymakers grapple with the fallout of a polarizing presidency and shifting demographics. There is no better example than the sweeping new bill, SB 1859, that Senator Beverly Powell (D-Burleson) introduced last week targeting student loan servicers. Elected in 2018, Sen. Powell rode an anti-Trump wave to victory in the slightly Republican-leaning Texas Senate District 10. Though she may represent a fairly conservative base, Sen. Powell is not shying away from what many will view as anti-business legislation.
In addition to creating substantial new licensing and regulatory burdens, SB 1859 would mandate the designation of a state student loan ombudsman and, separately, require the Texas Banking Commissioner to investigate any complaint received about a student loan servicer. More troubling, the bill would grant the state’s 3 million+ student loan borrowers a powerful new private right of action.
As proposed, the roadblocks to frivolous filings are virtually non-existent:
- Do you believe, in hindsight, that your loan servicer “misled” you about whether deferment or forbearance is best under your individual circumstances, sue!
- Do you believe your loan servicer omitted any “material information” (whatever that may be interpreted to mean by you or your lawyer) at any time when servicing your loan, sue!
- Do you believe your loan servicer misapplied a payment, don’t call to work it out, sue!
- Did your loan servicer suppress or delete negative information about your account so that you would not be hurt by your failure to pay, congratulations . . . but still sue!
- Are your actual damages so small that it would never make sense to go to court, don’t worry, you can get treble damages, costs, and attorney’s fees, now sue!
If enacted in its current form, Texas lawyers will see a windfall from the proposed legislation. It will only take a small segment of Texas’s student loan borrowers (an unfortunate many of whom will be cash-strapped, desperate, and easily misled) to generate the proverbial “wave” of new cases. But, in my experience, I am not sure anyone else will win. Borrowers will invest time and resources in hopeless causes, often ending up worse off than when they started. Busy courts will see their dockets swell with cases that are difficult to cull before summary judgment under Texas procedures. Loan servicers will watch limited resources be redirected to baseless disputes.
It is unclear whether SB 1859 has legs. Let’s hope not. Because the alternative could suggest Texas is no longer a welcome home to America’s leading financial institutions. It also would beg the question: why stop at student loans?