We received an application (in the form of a PFS prepared jointly between husband and wife) for a commercial loan and the credit approval indicates that the borrower will be the two individuals or an entity to be named. They ended up creating an LLC but the husband is the only one that has anything to do with the LLC.

Loan was approved as a commercial loan to the LLC with the husband and wife as guarantor.

I think we need to take the wife off.

Am I on the right track?

Did the bank document joint intent that the wife voluntarily offered to guaranty - either something signed by the wife or a memo to file from the lender/relationship officer?

That is what is missing. It is a violation of Reg B/ECOA for the bank to require the spousal guaranty if the spouse is not an owner or officer of the company.

"It is a violation of Reg B/ECOA for the bank to require the spousal guaranty if the spouse is not an owner or officer of the company."

And your Bank policy is to require officers and owners to guarantee such loans.

True...it can't be pick and choose when you feel like, that leads to potential discrimination. You need to be requiring this consistently.

I am amazed how much of this I still see after all these years.

Okay....let me ask another question regarding this same loan scenario....

Since the original application was in the name of both applicants "or an entity to be named" (because it looks like they were intending to set up an LLC, which they did....but the wife is not part of the LLC in any way).....so now we have a credit report for both applicants, but a loan made to the LLC...would you agree that we should have the lender memo the file explaining why there is a credit report for the spouse in the file when she was not a borrower or guarantor?

And...the request was approved in loan committee either way (joint or the LLC as borrower), so I don't think any kind of AAN is necessary. Am I on the right track?

I'm not sure you had a joint application or if joint intent was established based on the information presented in this thread.



From the Commentary to 202.7(d):

For example, signatures on a joint financial statement affirming the veracity of information are not sufficient to establish intent to apply for joint credit.


Looks like you may need to review your "application" process for business loans.


As for the question on the AAN; I don't see where AA has been taken

"would you agree that we should have the lender memo the file explaining why there is a credit report for the spouse in the file when she was not a borrower or guarantor?"

I think that would be fine. They applied for a loan jointly - you had a permissible purpose at that time.

I agree that IF when the initial conversation with the lending officer took place the individuals stated that they would borrow jointly or in the name of an entity to be formed, the lending officer should put a memo in file stating that joint intent was indicated.

If you have a written application form, which it sounds like you do, it would be good to have a place for indication of joint intent.