How are you all handling your commercial lender's practice of getting "continuing guarantees?" I had no idea this practice was so widespread until I stepped into my Reg. B training session today. The question was asked, do we need to get a signed "intent" statement from each continuing guarantor at each subsequent request for credit? My first thought is this: if the guarantor is a principal of the business then no, we don't need intent. It's the non-principal guarantors that I am concerned about. Lenders argue that the customer agreed to sign a continuing guarantee because they don't want to be pestered by the bank on each credit extension.

How are you all handling these non-principal continuing guarantees? 202.7(d)(6) doesn't speak exactly to this situation. I'd like to apply "joint applicant" exception that applies to signatures obtained later as a condition of approval but it doesn't quite make sense here.

If we were to go back and determine that each continuing guarantee was obtained appropriately per Reg. B sig rules, can we bypass that guarantor's intent signature?

I haven't called my regulator yet, thought perhaps someone had already figured it out!

If these guarantors are a "condition" of the loan, why do you need a intent to apply for joint credit?

Guarantors are not covered by the requirement to evidence intent for joint credit. This is because the definition of "joint applicant" in the commentary to 202.7(d)(1)-2 does not include someone "whose signature is required by the ceditor as a condition for granting the credit requested."

Banks are prohibited from requiring non-principal spouses to guarantee a loan, but the new requirement to document intent only applies to them if they are a "joint applicant" meaning that they are obligated on the note, not guarantors or cosigners.

OK, that was probably a dumb question on the continuing guarantee. Is it a valid question if the person signing the continuing guarantee is not a business principal?

Terry - I know I'm beating a dead horse here, but are you then saying a co-signer would not be considered a "joint applicant" even if the co-signer applied contemporaneously with the applicant?

In our procedures we elected to require an intent statement if the person "contemporaneously" applies in the name of the business and as a guarantor; or "contemporaneously" as applicant and co-signer.

But, if they apply in the name of the business, and subsequently, as a condition of loan approval we say the business needs a guarantor - then obviously no intent statement is required.

In the end, don't we have to rely on the customer's intent at the time of application? My question is this...how would you know NOT to ask for the 2nd person's intent signature if, at the time of application (and the guy is sitting in front of you), you don't KNOW if there will be a condition? Why not ask for the intent sig?

Likewise with co-signers, if the 2nd signature was required upon our review of the request and is a loan condition we do not consider the co-x as a joint applicant. In any case --- at this point, I couldn't bear to go back and re-train lenders!

I'm not well versed on issues specific to a continuing guarantee, but regarding guarantees in general, my answer to your first question is yes. A cosigner or a guarantor is not a "joint applicant" as defined in the commentary to Reg B regardless of whether the applicant brings the cosigner or guarantor contemporaneously or you ask for one later. In either case those people are fullfilling the same role in the transaction regardless of the timing. Regardless of the timing, cosigner or guarantor is being "required by the creditor as a condition for granting credit" because the lender shouldn't take the cosigner/guarantor if the loan doesn't need one.

The point of the new requirement is to evidence the customer's intent at the time of application, not the lender's requirements. So if a customer intends to apply individually and this intent is documented, then later on at closing if his or her spouse's signature ends up on the note there will be a paper trail to show that the spouse may have been improperly coerced into becoming obligated on the debt.

While the regulation also prohibits the bank from requiring the spouse into becoming a cosigner or guarantor, for some reason the regulators chose not to require evidence regarding the intial intent to become cosigners or guarantors, just "joint applicants".

I'm not sure what to do about retraining lenders. Maybe some others will have some good advice on this one. Our biggest risk with this requirement is that the lenders may fail to document joint intent when it trully occurred. If they document cosigners and guarantors as joint credit when they trully are not, regulators may still consider this to be a material problem because it undermines the usefullness of documenting true joint credits. At the very least, it makes it much more difficult to review the true joint credits for potential discrimination because they (or you) will spend a lot of time an energy weeding through the others to find the ones that count. It could also raise examiners' concern over the lenders' ability to properly evidence the true joint credits if they don't really know what those are.

Terry - somehow, you have made sense out of this for me. I had been experiencing some concern our approach would cloud the true nature of the application - individual vs joint. Guess, I'll just do a "fess-up" notification to lending staff, tell them they're off the hook for co-signers and guarantor "intent" statements. They'll see it as good news so don't think I'll get run out of town on this one.

As far as continuing guarantees, I plan to go thru our "drawerful" and just make sure the signatures are appropriate, e.g. no non-principal spouses.

Thanks, again.

I've just run into this on ag loans. Will you cause the continuing guarantees to be released if they don't seem to be required as a condition of approval of the current loan?