Last week we had an application from a husband and wife who want a loan to save their vehicle from repo'd by another F/I. Requested loan denied due to Delinquent Past or Present Credit Obligations.

Fast forward to today - Application from son-in-law that wants the same amount to "help family". The son qualifies for the loan but the collateral is a third party pledge of that same vehicle, owned and pledged by the in-laws.

We'd rather not make the loan with that collateral having to be pledged by Mr In Law and Mrs In Law when we know the credit history of that collateral. Any ideas of what would be appropriate for this situation? Thanks in advance.

Can you call it insufficient collateral?

No. Collateral value itself is sufficient. Thanks though!

Since there's already a lien on the vehicle, I would call it insufficient. Why would you allow being in 2nd position on a car loan? Or is your loan used to pay off the existing loan?

Loan proceeds would pay off existing loan.

Deny it as "no loans of this type"... IF you have never allowed collateral to be used that is owned by a 3rd party (Mr. & Ms. In-Law) than it is a loan product that you do not offer...

Our loan policy states that autos must be registered to the borrower, and may contain only 1 non-signer on the loan. this way we do not have to make these types of loans you described unless Son-In-Law is going to place his name on the title.

Just a thought......

I could be off base, but it sounds like the son-in-law, while he would be the borrower, he would also be a "co-signer" as defined by Regulation AA (227.12), meaning that he will not receive any benefit from the loan proceeds. Check your loan policy. Some banks' policies state that they don't do loans to cosigners. If you do allow cosigners, be sure to include the Notice to Cosigner disclosure (227.14).

I don't think it is accurate to say the son is a co-signer if he is the only person obligated on the note.

We went with "Third Party Pledgors not acceptable to this bank." We don't want collateral that is being pledged by people that just got the collateral out of "hock" so to speak.

Just make sure that you never really do make such loans.

Understood. Thanks

Since when does collateral have a credit history?